Policy background
- The leasehold housing sector is an important part of the national housing market. It houses an estimated 4.86 million households in England and Wales. Approximately two thirds of these properties are flats and one third houses.
- Long leases (generally leases granted for more than 21 years) normally provide for the leaseholder to pay ground rent to their freeholder for renting the land that the leasehold property is on.
- Historically, many ground rents were set at a nominal level. However, in recent years many ground rents have risen from nominal levels to more than 0.1% of the property’s value, and the practice of granting leases including terms requiring frequent rent reviews where the ground rent amount doubles has emerged. In some cases, the rights to receive ground rents from leaseholders have been bought and sold in the financial market as a long-term income stream for third party investors. Leaseholders receive no clear service in return for these ground rent payments and it is not always clear what costs leaseholders will have to pay when they purchase their home. As a result, some leaseholders may face difficulties in selling or re-mortgaging or find it costly to buy the freehold through enfranchisement.
- In July 2017 the Government consultation ‘"Tackling unfair practices in the leasehold market"‘ sought views on introducing measures to limit ground rents in new leases to start and remain at a ‘"peppercorn’" (zero financial) level. In December 2017 the Government committed to reducing ground rents on newly established leases of houses and flats to a peppercorn rent. In October 2018 a technical consultation Implementing reforms to the leasehold system in England asked for views on the detail of the implementation of these proposals, including circumstances where exemptions may be necessary.
- This Act takes forward these proposals making leasehold ownership fairer and more affordable by limiting ground rents for long residential leases to a token one peppercorn per year.
- The Government is committed to promoting fairness and transparency for homeowners and ensuring that consumers are protected from abuse and poor service. This Act is the first of two-part seminal legislation to reform the leasehold system.
