BSA welcomes the end of ground rent charges on new residential properties

Government announces end of ground rent charges on new residential leases from 30 June 2022.

Paul Broadhead, Head of Housing and Mortgage Policy at the BSA.

The Government’s announcement (22 April 2022), confirming the end of ground rent charges on new residential leases from 30 June is a welcome step in ending unfair leasehold terms, making homeownership more affordable for many.

There are estimated to be 4.5m leasehold homes in England, of which 69% are flats and 31% are houses.  94% of leasehold properties are owner occupied or privately owned, with the remainder being owned by social landlords and let in the social rented sector[1].

In a leasehold property, the homeowner buys a property, but the freeholder retains ownership of the land on which the property stands, providing the homeowner with a long lease giving them the right to live in the property for a period of time.

Over recent years our members have seen many unfair leasehold terms, including high service charges and estate rent charges, lack of transparency on costs, sale transfer fees and excessive ground rent liabilities. The BSA has been lobbying Government for changes to address these issues and has supported the Department for Levelling Up, Communities and Housing (DLUHC) in the development of the Leasehold Reform (Ground Rent) Act.

While the end of unfair ground rent is a welcome move, there are other reforms still to come that will improve the terms for homeowners who do not own the freehold for their property, such as giving them the right to extend their leases by 990 years.

Another area, which I have been closely involved in, is the expansion of commonhold as an alternative model of ownership to leasehold for multi-occupancy buildings.

It was introduced in the UK in the Commonhold and Leasehold Reform Act 2002, and whilst it was assumed that commonhold would become the standard form of tenure for new-build blocks of flats, in practice very few properties are in commonhold ownership.

Where in leasehold properties the freeholder owns the land and leases it on a long lease, in commonhold the property owners jointly own the land, without time limit. Each commonhold property is divided into common parts and separate units, with each flat usually becoming one unit.

In July 2020, the Law Commission published a report Reinvigorating Commonhold: the alternative to leasehold ownership which outlined a number of recommendations for leaseholders, including enabling leaseholders to be able to convert to commonhold.

As a member of the Commonhold Council, we have been discussing these recommendations, recognising how moving to a commonhold market is complex and considering the many challenges that need to be addressed. We are  making progress in our discussions and I expect the Secretary of State will make further announcements in due course.

There isn’t a magic wand that will solve all issues with one wave. We need continuous engagement with all stakeholders to identify the issues and consider ways to address each one, implementing change a step at a time.  The announcement to outlaw ground rents for new properties is one step on this journey, which we very much welcome.