Queen's Speech 2021 - Leasehold Reform (Ground Rent) Bill

Leasehold Reform (Ground Rent) Bill

“Laws [to modernise the planning system]...will be brought forward, along with measures to end the practice of ground rents for new leasehold properties.”

The purpose of the Bill is to:

The main benefits of the Bill would be:

residential leases cannot

a financial ground rent for no tangible service, making leasehold a

more transparent and fairer system for homeowners.

The main elements of the Bill are:

• ● Restricting the charging of ground rents on new long residential leases.

• ● Enforcing the charging of a prohibited ground rent by way of a civil penalty regime, including fines of up to £5,000 for freeholders that charge ground rent in contravention of the Bill.

• ● Ensuring that there can be no financial demand for ground rent for all future qualifying leases so that future leaseholders do not face unfair terms or significant ground rent liabilities.

• ● Having only selected exemptions, including:

o Some parts of the community-led housing sector, so they can retain the right to levy ground rent to maintain their ability to further promote community activities.

o Certain financial products which depend on leases where rent replaces interest bearing mortgage payments, such as those drawn on by the older population for a type of equity release and the growing Islamic finance sector.

o Business leases, to allow people who need to live in the same premises as their workplace to continue to do this and agree with their freeholder the most beneficial and appropriate terms.

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Territorial extent and application

● The provisions in the Bill will extend and apply to England and Wales.

Key facts

• ● Leasehold has always been a common form of ownership for flats. Historically, ground rents in leasehold contracts would require the payment of no or little financial value (a peppercorn) and only be used as a nominal consideration to form a leasehold contract, as opposed to a payment for any type of service.

• ● The Government has asked the Competition and Markets Authority (CMA) to conduct an investigation into potential mis-selling in the leasehold sector, which includes the problem of onerous ground rent terms.

• ● The CMA published an update in March 2021 and has issued consultation letters to two housing developers in relation to possible breaches of consumer protection law in the residential leasehold sector. Progress on the investigation can be found on the CMA website.