Plans set new-build house ground rent at peppercorn rate

Daniel Haigh Daniel Haigh 02 December 2021

Conveyancers have welcomed Government plans to set the ground rent costs on new houses at "one peppercorn" a year.

The Leasehold Reform Bill passed its first stage in the Commons unopposed earlier this week, and if it becomes law, will in effect leave owners in England and Wales who buy leases, rather than freeholds, paying nothing in ground rent.

The move follows worries that leaseholders are being charged steep, escalating yearly ground rents which are often not acceptable to lenders or attractive to buyers. It has lead the media to coin the term ‘fleecehold’ to describe these type of properties.

Daniel Haigh, residential conveyancing executive at Wake Smith Solicitors said: “It is relatively normal for someone buying part of a shared building, such as a flat in a converted house or purpose-built block, to own just a leasehold, lasting anywhere from 125 to 999 years. It can be beneficial in these cases to have a third party who is responsible for things which are to the benefit of all the homeowners, such as arranging building insurance for the block or maintaining the common areas.

“Someone else can own the freehold, which is the property as a whole and the land on which it is built. In this situation, the leaseholder pays ground rent to the freeholder as an annual fee for which nothing is provided in return.

“This change in law would be a positive move as the above arrangement has increasingly been applied to people purchasing new-build houses, resulting in many buyers claiming being mis-sold a leasehold by a developer. Here, new buyers of these properties will require leases be varied to remove these oppressive provisions or require indemnity insurance to meet the requirements of lenders. All of which adds further time and expense for the seller.

“And the arrangement is increasingly being applied to people purchasing new-build houses. Many buyers claim being mis-sold a leasehold by a developer.

"This change in legislation would mean new residential long leases will have no financial demand for ground rent.

"Instead, nothing more than an actual peppercorn can be collected from the leaseholder.

“Whilst this is certainly a good start, I would like to see this extended to affect any property which is subject to a long lease to help those who may already be subject to an ever increasing ground rent.”

The bill, which has already been passed by the House of Lords, will now undergo further scrutiny by MPs before it can become law.

In 2018 the government consulted on capping ground rent on leasehold houses at £10 a year, but the Leasehold Reform Bill stipulates setting the annual rate at "one peppercorn" a term which refers to non-existent or minuscule payments, and is thought to date back to the 16th or 17th Century.

Are you buying or selling a house and need advice? Contact Wake Smith specialist conveyancing team at [email protected] or on 0114 266 6660

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