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Insights | 09 Dec 2021

The Leasehold Reform Bill


MPs back setting new-build house ground rent at one peppercorn a year

MPs have backed setting the cost of ground rents on new houses in England and Wales at “one peppercorn” a year.

The government-sponsored plan, if it becomes law, will effectively leave owners who buy only leases – rather than freeholds – paying nothing. The move follows concerns that leaseholders are being charged exorbitant, fast-rising ground rents.

But Labour says ministers need to go further and completely ban the selling of houses without a freehold.

The Leasehold Reform Bill passed its first stage in the Commons unopposed on Monday. The bill, which has already been passed by the House of Lords, will now undergo further scrutiny by MPs before it can become law. Leasehold campaigners welcome new changes


Government vows to end complex leasehold costs

It is relatively normal for someone buying part of a shared building – such as a flat in a converted house or purpose-built block – to own just a leasehold, lasting up to 999 years.

Someone else owns the freehold – the property as a whole and the land on which it is built. In this situation, the leaseholder pays ground rent to the freeholder.

But, according to research from 2018 by Propertymark, the association for letting and estate agents, the arrangement is increasingly being applied to people purchasing new-build houses. Many buyers claim they have been mis-sold a leasehold by a developer.

In 2018 the government consulted on capping ground rent on leasehold houses at £10 a year, but the Leasehold Reform Bill stipulates setting the annual rate at “one peppercorn”.

The term “peppercorn”, referring to non-existent or minuscule payments, is thought to date back to the 16th or 17th Century. While the spice itself was highly valuable in bulk, a single corn was considered to be of little worth.


The difference between a freeholder and a leaseholder

Someone who owns a property outright, including the land it is built on, is a freeholder.

With a leasehold, the person owns a lease, which gives them the right to use the property. But they still have to get their landlord’s permission for any work or changes to their homes.

When a leasehold flat or house is first sold, a lease is granted for a fixed period of time, typically between 99 and 125 years – but sometimes up to 999 years. People may extend their lease or buy the freehold, but this can be complicated and expensive and involve legal fees.

Leasehold house owners are also often charged expensive ground rent, as well as fees if they want to make changes to their homes. A leasehold house can also be difficult to sell

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