Trapped by growing ground rent

Conservative MP Stephen McPartland spoke in parliament on Wednesday 27 February regarding rising ground rents, a topic which has received a lot of attention recently. In the discussion he focused on leasehold and shared ownership and used a residential building called Six Hills House in Stevenage as an example.

To set the scene, the government are acting to improve the situation around leasehold and onerous ground rents and announced that ground rents would be reduced on new build homes to zero or a peppercorn rate of £10. Whilst this is a positive step forward, it doesn’t help those who are already in leases with onerous ground rents.

The leaseholders in Six Hills House are trapped in leases with a clause that the ground rent can be doubled every 10, 15 or 20 years and this is preventing mortgage companies offering mortgages on these homes. Many of the leaseholders own only a small percentage of the home but are responsible for paying 100% of the freehold fees.

Stephen McPartland explains: My real concern is that these are shared-ownership properties, but the tenants seem to be responsible for 100% of the freehold, even though they will often only own 10%, 15% or 25% of the actual property. That does not seem fair. All the barriers to moving forward in their lives seem to be loaded on the people who are 75% tenants and 25% homeowners.”

Adding that the simplest solution would be for the freeholder to change the details on the deed to something more appropriate which would resolve all the issues with the mortgage companies and social housing providers.

Heather Wheeler, the Parliamentary Under Secretary of State at the Ministry of Housing, Communities, and Local Government responded with:

“The Government are committed to improving consumer choice and fairness for the increasing number of leaseholders. That includes our work to make it easier and cheaper for leaseholders to enfranchise, the support we are providing for those with onerous ground rent terms, and our aim to make service charges more transparent for all. That work should act as a guard against the practices that form the subject of this debate, namely, where freeholds are sold on to a third-party investor without the leaseholder’s knowledge.”

Adding “I want to see support extended to all leaseholders with onerous ground rents, including second-hand buyers, and for customers to be proactively contacted. We will continue to work with the industry on a way forward to help existing leaseholders with onerous leases. I want to stress that leaseholders should seek impartial legal advice about potentially onerous ground rents contained in their leases. Free advice is also available from the Government’s Leasehold Advisory Service—LEASE.”
Read more here.
You can also read more about ground rents in our article written by Duncan Greenwood, Partner at DAC Beachcroft last year here and an article from Chris Rispin here.