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Leases and Ground Rents: Crackdown

Mike Lewis, head of the property litigation department at SA Law, comments

Paying a notional ground rent when you have a lease of a flat has been common practice for as long as the concept of a flat has been around. Acquiring a lease of a house with the subsequent burden of ground rent has been a more recent concept.

However, the government has announced a crackdown on leases on houses that can force purchasers to pay exorbitant ground rents. Ministers have unveiled plans to ban builders such as Taylor Wimpey from selling further leasehold houses in a bid to protect buyers from extortionate future costs and in certain cases making the property unsellable.  

As a recap, ground rents are the charges that a leaseholder has to pay the company or individual that owns the freehold of a property. Whilst with flats there is logic to it given that there has to be communal parts and a vehicle for how they are run/managed, developers have come under considerable criticism for adopting the same process with houses.  

Sajid Javid Community Secretary stated: “It is clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.”

The immediate backlash for developers is going to be in relation to compensation claims. There are examples of purchasers being saddled with ground rents that are doubling every 10 years, one particular example is of a house built with a £295 annual ground rent, the ground rent will be £9,440 per annum in 50 years’ time.

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