Following the Queen's Speech last week we have further guidance on what the future of ground rents in residential leases will look like. There has been some contention in recent years regarding onerous ground rent clauses being placed in new leases and in voluntary lease extensions. Where a leaseholder exercises a statutory right to a lease extension pursuant to the Leasehold Reform Housing and Urban Development Act 1993 the ground rent becomes a peppercorn. However, with voluntary lease extension it depends on what the parties agree and many landlords will impose rising ground rents or rent review clauses.
The Bill proposes to remove ground rent from future leases including lease extensions. This will not apply retrospectively. The main purpose is to provide consistency and certainty for future leaseholders. The Speech highlights that removing ground rent will ensure leaseholders are not charged "a financial ground rent for no tangible service, making leasehold a more transparent and fairer system for homeowners".
Furthermore, when this does come into force, a fine of up to £5000 will be introduced for those landlords who charge a ground rent in contravention of the law. There are proposed exceptions to the ground rent changes which will include business leases and those with Islamic mortgages where a rent replaces interest bearing mortgage payments.
Full details of the Queen's Speech can be found here with the Leasehold Reforms covered at pages 110 and 111.
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