Proposals for Ground Rent Cap
The Government published a consultation entitled “Modern leasehold: restricting ground rent for existing leases” which sought views on the introduction of a cap on ground rents in long residential lease, being leases with a term of 21 years or greater, in England and Wales. The consultation was closed on 17 January 2024.
The five options for consideration were:
- Cap ground rent at a peppercorn.
Due to the introduction of The Leasehold Reform (Ground Rent) Act (2022) on 30 June 2022 in respect of new leases and 1 April 2023 for leases for retirement homes, a long lease granted for a premium on or after 30 June 2022 (which is not considered to be an excepted lease) can only demand ground rent which does not exceed more than one peppercorn per annum.
The proposal to cap ground rent at a peppercorn for existing leases would aim to align ground rents charged under existing leases and new leases and seek to end the payment of ongoing rent paid in addition to the sum which the leaseholder paid to purchase the property.
- Cap ground rent at an absolute maximum value.
Consideration would be given to fixing an upper financial value that ground rents could rise to. Any ground rents which are currently charged which fall below that figure would be permitted to rise to the upper financial value but not exceed it. This option would seek to eliminate high escalating ground rents.
- Cap ground rents at a percentage of the property value.
The proposal in the consultation was 0.1% of the property value.
If either the cap at a maximum value or cap at a percentage of the property value is implemented, consideration would be given to the possibility of permitting uprating of ground rent over time.
- Cap ground rent at the original amount it was when the lease was granted.
The Government’s intention with this proposal would be to legislate to prevent future escalation beyond the initial amount of ground rent stated in the lease.
- Freeze ground rent at current levels.
This proposal would see ground rents remain at the value stated in the lease as at the date the measure is implemented. The proposal provides for legislation to prevent future escalation of ground rent beyond the level it is at the date the legislation is enacted.
There are proposals for exemptions which will apply to any future cap for existing leases (being leases which were entered into before 30 June 2022), as follows:
- Where a lease has a term of less than 21 years;
- A long residential lease where the current freeholder can prove they have negotiated an agreement resulting in the current leaseholder not having to pay a premium;
- Where leases are for community-led housing: where it is a community housing lease (where the freeholder or landlord is a community land trust) or it is in a building controlled or managed by a co-operative society;
- Leases that are for home reversion plans, ‘rent to buy’ arrangements or sharia compliant finance, that rely upon rent to operate as a route to purchase a home.
- Business leases where the lease allows the property to be used for business purposes; the use of the property significantly contributes to the business purpose; and at or before the time the lease is granted the landlord and leaseholder exchange written notices confirming the use of the premises is for the business purposes specified in the lease.
Subject to the outcome of the consultation, it is intended that the Government will look to introduce a ground rent cap through the Leasehold and Freehold Reform Bill 2023-24, which is in the Report Stage of the House of Commons.
