What is Ground Rent and Why Should Leaseholders Be Concerned?
We’re lucky to live in such a beautiful and unique development, full of history,
magnificent scenery and stunning coastal walks. For many of us, a freehold house
would be unaffordable in such surroundings, so a leasehold flat is the perfect
solution.
It hasn’t always been this way though. Leasehold started way back in the 11th century
when wealthy landowners and powerful families with connections to the King, used
leasehold to allow peasants and serfs to rent some of their land for a fixed period. In
return, they’d pay the landowner a portion of their earnings. This system enabled the
landowner to keep their land and pass it on to their heirs, whilst also making a
handsome profit.
Thankfully we’ve moved on a lot since then and no longer need to work the land to
keep our homes. The first major changes to leasehold were in the 1920s and that
was the start of the modern system we know today. More changes are being
discussed by government for next year, which may include capping or removing ground rent plus many more improvements. If any of the proposed changes happen, this should make
make things even better, giving us more security and peace of mind. However, there is no definite time scale as yet for retrospective leasehold reforms which would affect leaseholders at RCY.
We have provided the summary below about the current position of leasehold properties at RCY - and some options to consider for the future. If anyone is interested in learning more, or helping with future options, please get in touch with Steve Parry (ledwell@rcmra.co.uk. or Yvonne Mills (granary@rcmra.co.uk).
Current Situation
A survey of ground rents for the different phases around Royal Clarence has revealed that there are some variations in ground rent costs depending on the number of bedrooms and the phase but there are several common facts:
All ground rents are currently £250 or less.
All RCY leases started from 2002 (when BH acquired the site), regardless of when the first leaseholder acquired the property.
After 25 years (in 2027) all our ground rents will double - and will continue to do so every 25 years.
So why is this a problem?
While our ground rents are at or under £250 limit above which leases come under an Assured Shorthold Tenancy (AST), there is no problem. However, once the annual ground rent goes above £250, this will push the properties into the rules relating to an AST.
The significance of an AST is that this creates a situation where the landlord/freeholder (Berkeley Homes) can potentially repossess the property if the ground rent or the service charge is in arrears. While Berkeley Homes might not choose to do this, this may not be the case if the freehold is sold on to an investment company (some of which are reported to be quite unscrupulous.)
Hasn't the law relating to Ground Rents changed recently?
The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022. This Act
fulfils the commitment to “set future ground rents to zero.” However the provisions apply only to new lease agreements.
Reform of leasehold/ground rents for existing owners (like us) is on the government's books for this parliament but given the current issues for the government, the timing of this is uncertain. The model the government is looking at is Commonhold.
What Can I Do About this?
There is a massive campaign going on through the National Leaseholders Campaign group. Please take the opportunity to look at this group and consider supporting them. They have several suggestions for things ordinary leaseholders like us can do to help from joining the Group, to writing to our MP, to following them on social media. Yvonne Mills (Granary Rep) is keeping a close eye on developments and will be reporting to the RCMRA Committee.
Other 0ptions for the Future
Although it is 5 years before ground rents double it is important that we keep a close eye on
developments. In discussion with Yvonne we feel that at present we should keep
monitoring the situation and wait to see if the proposed government reforms are
implemented. However, if these are not finalised by 2025 we should be looking at other
options.
One option for apartment owners is a statutory extension to the current lease where the lease could be extended by 90 years and the rent likely reduced to peppercorn (0%). This would be on an individual basis, probably requiring a specialised solicitor. and could cost approx £4-5K. This may be a better alternative to negotiating with the
freeholder (although we don't believe anyone has approached Berkeley Homes about this yet...).
Other options include buying the freehold or establishing commonhold. These are
complicated processes with a series of criteria that must be met and a requirement for
directors to manage the freehold.
There is also ‘Right to Manage’ where the property remains leasehold but the flat owners manage their own affairs and make their own decisions about the property management. However, this does not get over the ground rent issues unless the government brings in leasehold reforms.
For more detailed information on all of these options, please visit the Leasehold Advice Centre or the Leasehold Advisory Service websites.
Recommendations
Keep a watching brief on the proposed government legislation for leasehold reforms on
existing leasehold properties. If this is not implemented by 2025 we should be looking at
alternatives either individually (lease extension) or collectively (freehold/commonhold
purchase and possibly right to manage).
If anyone is interested in learning more, or helping with future options, please get in touch with Steve Parry (ledwell@rcmra.co.uk. or Yvonne Mills (granary@rcmra.co.uk).
