Ground Rent Reform Scrapped

Over the weekend, reports began emerging that the Conservative manifesto pledge to reduce ground rent to zero for existing leases was quietly being dropped.

In 2019, the Conservatives campaigned on: “restricting ground rents to a peppercorn”. Whilst this has now been accomplished for new leases via the Leasehold Reform (Ground Rent) Act 2022, leaseholders with existing leases were not affected by this.

A formal consultation was held at the start of 2024 on proposed changes to ground rent for existing leases (covered here). The options that were considered were:

1. capping ground rent at a peppercorn rate;
2. capping ground rent at an absolute maximum value;
3. capping ground rent at a percentage of the property value;
4. capping ground rent at the original amount it was when the lease was granted; or
5. freezing ground rent at current levels.

At the time we reported that the potential cost of compensation claims from capping ground rent at a peppercorn would be significant. The Residential Freehold Association, representing the UK’s largest professional freeholders, calculated the sum to be over £31 billion pounds, equivalent to a 1% income tax rise for the next five years.

Despite this, Michael Gove, the levelling-up secretary, continued to suggest that reducing ground rent for existing leases to zero was the Government’s intention and that this would be done as part of the Leasehold and Freehold Reform Bill (covered here).

However, after sustained lobbying by investors and pension funds (who own freeholds that give them a predictable income), the proposal to reduce ground rent to a peppercorn for existing leases appears to no longer be proceeding.

Angela Rayner, the shadow levelling-up secretary, has seized on these reports and stated that: “Labour is committed to comprehensive leasehold reform, enacting the Law Commission’s recommendations on enfranchisement, commonhold and right to manage in full.”

What should leaseholders with ground rent do?

One option for leaseholders of existing leases which a high or escalating ground rent would be to wait. Reform may still come under this Government or the next albeit in a different form such as a compromise position of a £250 annual cap on ground rent. However, reform is not guaranteed, and it may not be possible for some leaseholders to wait.

An active option would be for leaseholders to negotiate directly with their landlord to vary the ground rent provisions of the lease. Upon payment of a premium, it may be possible to reduce the future ground rent to zero.

Alternatively, if the landlord is not agreeable to voluntarily vary the lease, a leaseholder can forcibly seek a statutory lease extension. A side effect of seeking a statutory lease extension under the current legislation is that in return for payment of a premium, the ground rent will be reduced to £0. This process is covered in more detail here.

How Pinney Talfourd can help?

Our Property Litigation team understand the importance of staying informed about changes in property law. With our expertise in residential property litigation, we are well-equipped to assist you with any issues related to lease extensions.

If you have any questions or require assistance, please don’t hesitate to contact either Stephen Eccles at 01708 463202 or Oliver-James Topping at 01708 463227.