Consultation on restricting ground rent in existing leases

An open consultation on limiting the level of ground rent that leaseholders can be required to pay in England and Wales is due to close on 17 January 2024.

Legislation is already in place which freed future leaseholders from ever having to pay ground rent through the Leasehold Reform (Ground Rent) Act 2022. The consultation is looking at ground rent for existing leaseholders who cannot benefit from the new Act. The consultation recognises that there is no legal requirement for these historical ground rents to be reasonable or linked to any service provided. Additionally, many leases allow ground rents to increase substantially or to be reviewed frequently, leaving some leaseholders responsible to pay thousands of pounds worth of charges annually.

Under consideration:

• A cap of ground rents through primary legislation, for example, by capping existing ground rents at a peppercorn. This will put all leaseholders on a level playing field in terms of costs
• Capping ground rents to an absolute maximum value; providing an upper limit to the amount to which ground rents could rise
• Capping ground rents at a percentage of the property value – however, there is no current consensus as to what this percentage should be
• Capping ground rent at the original amount when the lease was granted; or
• Freezing ground rent at current levels.

It is recognised that there is a need to strike a fair balance between the tenants who are there to live in and enjoy the leasehold properties and those of freeholders, who will lose revenue as a result of implementing a cap on existing ground rents. However, the consultation is clear that where the landlord is incurring legitimate costs, they should be met through the service charge and not from a ground rent.