Government Reforms, The CMA & Resolving Ground Rent Issues

Following the widespread outcry caused by the leasehold scandal, action has been taken by the Government and by regulatory bodies to address the problem. However, as explained below, this does not resolve the matter for most leaseholders with onerous ground rents. 

Government reforms

The Leasehold Reform (Ground Rent) Act 2022, which is described on the Government’s website as “the first of two-part seminal legislation”, highlights the risk for current leaseholders of relying on Government reforms to rectify their issues.

The headline provision of the Act – that ground rents for ‘regulated leases’ will not be generally permitted to exceed ‘a peppercorn’ (i.e. not have a financial value) – applies only to leases for which contracts have been exchanged after the Act comes into force (which is scheduled to be within the next 6 months).

It will not apply to current leases whether they would otherwise be classed as ‘regulated’ or not, unless there is a deemed surrender and grant of a new lease as may happen, for example, if a deed of variation is entered into which extends the lease term. Therefore, ironically existing ground rent clauses could act as an even greater blight on the value/marketability of a leasehold property as subsequent new builds are sold with peppercorn ground rents.

This will likely make removing/varying the ground rent provisions even more crucial for leaseholders. The Government is proposing, amongst other things, to provide an online calculator to offer a standardised valuation for a leaseholder to extend their lease or purchase the freehold. This may make a lease extension/purchase of the freehold cheaper however it would still be a cost borne by the leaseholder which they may have grounds to recover from their solicitor/conveyancer by way of a claim but only if it is brought in time.

The CMA

The CMA has taken action against high-profile corporate landlords including Taylor Wimpey and Countryside Properties in respect of ground rents which double every 10 or 15 years.

The CMA has not only obtained agreements from some of these landlords to vary doubling ground rents to link them to the RPI but obtained agreement for them to remove the escalation clauses entirely.

However, this does not appear to address the problems for leaseholders with:

In other words, many, if not the majority of tenants will still be left out of pocket – paying thousands of pounds for deeds of variation/ lease extensions –  as a result of their onerous ground rent.

The risks of wait and see

Many leaseholders will reasonably think that they should wait and see what happens, however, they risk being time-barred from bringing a claim should they not do so within six years of exchanging on their purchase.

If in doubt about whether they have a claim, or whether the reforms/action by the CMA will resolve their issue, it is advisable that they obtain advice as soon as possible to avoid a situation where their issues are not resolved but their limitation period has expired in the interim.