Will the looming ground rent cap help or hinder property sales?
Summary
The article examines the Government’s planned cap on most existing residential ground rents in England and Wales, moving them to £250 a year before reducing them to a peppercorn after 40 years under the forthcoming Commonhold and Leasehold Reform Bill. It argues the reform may ease sales and mortgage issues linked to onerous ground rents, but could also reduce freeholder income, create fairness concerns between leaseholders, and affect valuation and financing assumptions.
Why it matters
Residential surveyors may need to assess how the proposed cap affects lease values, saleability, and lender appetite, particularly where ground rent escalation clauses are onerous. The article also highlights the importance of clear lease advice and careful review of portfolios ahead of implementation.
Key points
- Government plans to cap most existing residential ground rents at £250 a year, then reduce them to peppercorn after 40 years.
- ALEP research suggests ground rents can hinder sales and mortgage approvals, especially where terms are unclear or escalating.
- Freeholders, including pension funds, charities and local authorities, may see reduced income and lower asset values.
- The reform may improve market confidence but could create fairness issues for leaseholders who already paid to extend leases or buy freeholds.
- Implementation details, exemptions and secondary legislation may determine the practical impact.
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