The Government has announced that the ban on charging ground rents on new long leases will come into force on 30th June 2022.
does not apply to leases granted pursuant to a contract which pre-dates 30th June 2022.
covers both long leases of houses and leases of flats.
applies to ground rents on shared ownership leases.
will apply to retirement complexes, but not until after 1 April 2023.
A two tier market?
Developers with schemes which are being marketed at the moment will need to consider their position in relation to the terms offered to their prospective purchasers. The position will be particularly delicate where contracts have already been exchanged on the some of the units on the development site for leases which charge a ground rent.
Developers can either proceed with the development on the basis that some of the tenants will pay ground rent and some will not.
Alternatively they could (if they wish) vary the terms of the contracts already exchanged to remove ground rents in order to ensure consistency of approach across their development. Some developers have already abandoned the use of ground rents.
The end of ground rents may give rise to a two tier market in leasehold flats as buyers will be less attracted to buying flats which carry a ground rent liability.
The changes to the rules on ground rents will be followed with changes to the rules relating to long leaseholders’ rights to extend their leases. The right to extend is being modified so that a tenant of a long lease can apply to extend their lease for 990 years rather than the current 90 years.
This provides another route for tenants of existing properties where a ground rent is payable to convert their leases to remove the ground rent liability. However in those cases they are liable to pay the landlord a premium for the grant of a new lease and the release of the ground rent liability.
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