Rip-off ground rents are another existential threat to leaseholders

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02-04-2025

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Leaseholders have been having a bad time of it lately. Not only have they had to suck up soaring service charge demands, many existing owners have come to realise Matthew Pennycook's promises of abolishing this feudal system, was nothing more than false hope.
I hate to say this, because I also own leaseholds, but the situation looks like it's getting worse.
Most owners will already know the importance of not allowing their lease to go below 80 years. That is the magic number, and if you're unlucky enough for your flat to fall below this threshold, then you'll end up having to pay an often extortionate 'marriage value' to the freeholders to extend the lease. This means the hypothetical profit that the leaseholder will make due to the lease extension is split equally with the freeholder.
If you've done work and improved your property, it'll likely mean you'll pay even more to the freeholders, because it's probable your lease (when extended) will mean the property is worth even more – and they want their slice of the pie.
As the leaseholder, you will also have to pay all of the freeholder's costs (including their surveyor's and solicitor's expenses) but as an 'added bonus', you will also have to pay all of your own costs on top of that too.
I would say leasehold is the gift that keeps on giving, but that's only if you're a freeholder.
Unfortunately, this unfair, antiquated and ridiculous system that sees freeholders get rich off the backs of leaseholders is what the Leasehold and Freehold Reform Act 2024 was meant to tackle, but as it's still yawning its way through Parliament, I'm not holding my breath. Last year the Government admitted leasehold reform could take up to five years.
In fact, and I hate to be such a neg-head, but I think this whole leasehold saga is about to get a whole lot worse because of the spectre of ground rent escalation.
Ground rent, in simple terms, is a fee the leaseholder pays the freeholder for the right to occupy the land on which their property stands. The freeholder doesn't provide any services in return for the payment of ground rent, and the Competition and Markets Authority (CMA) has also concluded that ground rent is neither 'legally nor commercially necessary'.
Despite ground rents being abolished in the Leasehold Reform (Ground Rent) Act 2022, which came into effect on 30 June 2022, that was only for new long leases.
If you have a lease from before then (and there are millions), none of this helps. If you read the small print in your lease, you'll most likely see the freeholder can increase the ground rent every 25 years. Some may detail a fixed amount, while others have a 'doubling clause'.
If your tummy is looping and you're feeling nauseous while reading this, it's understandable. The calamity around the corner is that many leaseholders with existing ground rents will find their leases both unmarketable and unmortgageable.
The banks are quickly cottoning on to this and are now refusing to lend on leaseholds with excessive ground rents, especially those with escalating clauses. The most worrying aspect is that ground rents remain unregulated, leaving the door open to ever-increasing charges.
So, what is the Government doing? Labour have said they will draft a Bill this year which regulates ground rents (but doesn't necessarily abolish them). There have also been proposals that ground rent would be capped to 0.1pc of capital value (for example, a maximum ground rent of £250 would be payable on a property worth £250,000), but nothing has yet been decided.
What has happened since – in an unsurprising twist – is that a group of freeholders have launched legal proceedings against the Government on the basis that these reforms will infringe their human rights. Thus far, they have been granted leave to apply for a judicial review to challenge the threat to their income streams, with this set to take place before the end of July 2025.
Given billions of pounds are at stake, this will be a behemoth of a battle.
In November last year, Matthew Pennycook said: 'Millions of homeowners across the country will remember with fondness the sense of satisfaction, pride and security they felt when completing the purchase of their first home… Yet, for far too many leaseholders, the reality of home ownership has fallen woefully short of the dream – their lives marked by an intermittent, if not constant, struggle with punitive and escalating ground rents; unjustified permissions and administration fees; unreasonable or extortionate charges; and onerous conditions imposed with little or no consultation. This is not what home ownership should entail.'
I don't think there's a leaseholder in the land that would disagree with him, now it's time we see action.
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