How will the abolition of ground rents affect existing leaseholds?

How will the abolition of ground rents affect existing leaseholds?

9:21 AM, 18th May 2021, About a month ago 7

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It was announced in the Queen’s speech last week that ground rents for new leasehold properties will be abolished, with a small sum in rent taking their place. However, it remains unclear as to how, or if, this will impact existing leasehold homes and the latest research from StripeHomes has revealed just how much is already paid in ground rents each year across England.

There are some 4.5m leasehold homes in England accounting for an estimated 18.5% of all properties. The vast majority of those are flats (69%) and it’s thought the average leasehold homeowner will pay £319 a year in ground rent for the land their property occupies As a result, StripeHomes estimates that total ground rents paid on an annual basis across England could sit as high as £1.439bn.

London is home to by far the largest proportion of leasehold homes, accounting for 33.7% of all housing stock in the capital. As a result, it’s also home to the highest sum of ground rents paid, with an estimated £386m paid every year.

Perhaps surprisingly, it’s the North West that ranks with the second highest level of ground rents.

Leasehold homes account for 30.8% of housing stock in the North West, making it the only other region outside of London with more than a million leasehold homes. It’s also the only other region outside of London where ground rents top more than £300m a year, with an estimated £324m paid on an annual basis.

The South East (£196m), the South West (£118m) and the East of England (£110m) also rank high with annual ground rents surpassing £100m a year.

In contrast, the North East pays the lowest sum of ground rents each year. Leasehold homes account for just 9% of the region’s housing stock and leasehold homeowners pay out an estimated £58m a year in ground rents on them.

Managing Director of StripeHomes, James Forrester, commented:

“The decision to scrap ground rents on all new leasehold properties will be warmly welcomed by the nation’s homebuyers, many of whom rely on leasehold properties in order to get a foot on the ladder.

For far too long, we’ve seen these homeowners held at the mercy of big housebuilders deploying backhanded tactics such as the sale of leases to third party entities. These third parties then unjustifiably increase ground rents at extortionate rates based on no other motive than greed, leaving homeowners in financial turmoil.

It’s understandable that like any business, the nation’s big housebuilders must operate as such but nurturing profit margins shouldn’t come at the expense of homeowners. Hopefully, this reform will further encourage more ethical practices by those responsible for delivering much of the sorely required housing stock this nation needs.”

Table shows the estimated proportion of leasehold housing stock and the estimated total ground rents paid each year based on the average of £319 multiplied by the total number of leasehold homes
Region Estimated total dwelling stock (2019) Estimated leasehold stock Leasehold % Estimated ground rent values
London 3,592,000 1,210,504 33.7% £386,150,776
North West 3,300,000 1,016,400 30.8% £324,231,600
South East 3,944,000 615,264 15.6% £196,269,216
South West 1,237,000 368,797 14.7% £117,646,243
East of England 2,579,000 346,240 14.3% £110,450,560
West Midlands region 2,705,000 291,508 12.8% £92,991,052
Yorkshire and the Humber 2,441,000 290,479 11.9% £92,662,801
East Midlands 2,513,000 189,270 11.6% £60,377,130
North East 2,103,000 181,839 9% £58,006,641
England 24,414,000 4,510,301 18.5% £1,438,786,019
Sources Gov.uk – Live tables on dwellings stock Gov.uk – Estimating the number of leasehold dwellings City AM


Comments

by Dylan Morris

10:56 AM, 18th May 2021, About a month ago

1. “ground rents for new leasehold properties will be abolished, with a small sum in rent taking their place”. So not abolished then ?
2. “these third parties then unjustifiably increase ground rents at extortionate rates based on no other motive than greed, leaving homeowners in financial turmoil”. How can they do this when the terms of any ground rent increase is stated in the lease ?

by BernieWales

14:57 PM, 18th May 2021, About a month ago

"These third parties then unjustifiably increase ground rents at extortionate rates based on no other motive than greed, leaving homeowners in financial turmoil." ... is a biased statement, based on no evidence, and fundamentally inaccurate.

Ground rent can only be reviewed/changed in accordance with the terms of the lease. Any such increase in accordance with the provisions of the lease cannot be described as "unjustifiably". If the landlord/freeholder is increasing the ground rent via the methodology stated in the lease - that is justifiable.

Of course, if the terms of the lease permit large and arguably unfair increases; e.g. doubling every five years ... then perhaps the finger of blame should be pointed at the purchaser's solicitor. Did they spot the legal problem? Did they warn their purchaser client about the financial problems ahead? Or did they stay quiet because they were on a developer's panel of solicitors and "all in the club together"?

I am generally on the side of the leaseholder, but where writers make inaccurate statements like those above - I get seriously annoyed. It adds to the 'wicked landlord' rhetoric when in reality others are to blame. Shame on you 118 News Team, we expect better things from you (and usually get better things from you).

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Having got my little rant out of the way ... the various proposals for Leasehold Reform are to be welcomed for the most part. There is cross-party support for making leaseholders' lives easier and limiting costs ... which is fine. And the proposals for revamping Commonhold are good too ... and that is a better system for owning property, in my humble opinion.

by Puzzler

8:31 AM, 22nd May 2021, About 4 weeks ago

@Bernie,
How will Commonhold differ from a Residents' Management Company in practical terms and why is that not an option being considered? In Scotland, it's very hit and miss because everyone is responsible so nothing gets done unless you have a factor company (block agent) which everyone pays for. This is not easy to put in place after the event.

by Dylan Morris

8:35 AM, 22nd May 2021, About 4 weeks ago

I guess commonhold tenure would only apply to new builds and existing leasehold titles will have to remain in place ?

by BernieWales

14:50 PM, 1st June 2021, About 3 weeks ago

Reply to the comment left by Puzzler at 22/05/2021 - 08:31
Well, Puzzler ... if the flat/apartment owners can't be bothered to take action over the most important asset ... then they deserve what happens to the building. The Government (English or Scottish) can legislate and try to improve the systems - but the owners need to get off their backsides and use the property tenure legislation provided. Government can't do it for them.

by Puzzler

2:06 AM, 8th June 2021, About 2 weeks ago

Reply to the comment left by BernieWales at 01/06/2021 - 14:50
Thanks Bernie, you didn't actually answer my question which was why RMCs are not being considered as this model is in place in many developments already. How will commonhold differ?

by BernieWales

8:48 AM, 8th June 2021, About 2 weeks ago

Reply to the comment left by Puzzler at 08/06/2021 - 02:06
RMCs ... Residents' Management Companies ... exist in a tri-partite lease set up; i.e. Freeholder - RMC - Leaseholders. That set up has a freeholder in place ... which is what the Government wants to remove ... as do the leasehold abolition campaigners.

RFCs ... Residents' Freehold Companies ... would achieve the right result, as the freehold would be owned by the leaseholders at the property in question. But ... it's still leasehold and as such there is a wasting asset; i.e. the lease term is reducing over time.

Commonhold achieves the occupier ownership, but without the wasting asset problem of a lease term. So, commonhold answers all the wrongs so far as the Government is concerned.

All good, in theory. However, there will need to be a vast education programme across ALL property professionals and ALL property management software systems and ALL occupiers ... to bring commonhold to success. There will be a lot of unknown unknowns to overcome. (But bring it on!)


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