Ground rent charges - banned in new leases

From 30 June 2022, the Leasehold Reform Act came into force whereby ground rent charges are banned in new leases. As a result, mortgage lenders are increasingly reluctant to lend on existing leases with ground rent levels over certain levels. To satisfy mortgage lenders, a lease variation is required, removing ground rent charges. 

Where freeholders are willing to negotiate and agree a lease variation, they require a premium which may be similar to the ground rent for the remainder of the term of the lease.

If the freeholder is not willing to agree a lease variation (as is often the case), serving a Section 42 notice is required. This provides a statutory right to extend the lease, decreasing the ground rent to a peppercorn (or nil). The statutory route is time consuming (6-12 months) and costly (leaseholder is liable for their own and the freeholder’s surveyor and legal costs, together with the premium).

This impacts a number of properties in our portfolio. Where mortgage providers require leases to be changed before they will lend, the properties are unsaleable to anyone requiring a mortgage until the lease variation is agreed. The mortgage provider's refusal to lend is initiated by the buyer's solicitor being required to report the ground rent terms.