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Leasehold Housebuilders to Allow Leaseholders to Buy Freehold at a Discount and Repay Unfair Ground Rent

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Leaseholders are being given the opportunity to purchase their freehold at discounted prices after being ‘trapped’ into leases that left them paying thousands in annual ground rent and struggling to sell their homes.

Evidence that many leasehold homeowners had been misinformed when purchasing their properties and were being seriously overcharged for ground rent was uncovered following an investigation by the Competition and Markets Authority (CMA), as reported in The Guardian.

Housebuilders have been advised that they could potentially face legal action if they do not resolve the issues. Both Aviva and Persimmon have positively responded to the investigation.

Aviva has agreed to charge ground rent at a fairer price and compensate any leaseholders whose ground rent they had previously doubled in price. Similarly, Persimmon is offering the chance to buy the freehold of properties at discounted rates. They are providing those who previously purchased their freehold property a refund on anything they paid over £2,000 since the 1st of January 2000. This is currently only running until the end of 2026. 

This is the latest stage in an ongoing scandal over ground rent abuse on newly built houses which has been running for many years. Shockingly, more than half of leaseholders believe their property was mis-sold according to previous research by NAEA Propertymark.

The Government have now promised to address this. In January 2021, they stated that The Leasehold Reform (Ground Rent) Bill [HL] 2021-22, which protects future leasehold property owners, is progressing through parliament, aiming to set future ground rent to zero.

Given the importance of this issue for many homeowners, it is concerning that many people don’t understand the difference between leasehold and freehold ownership, often meaning that they don’t know what they have bought into – here are some of the key things to understand…

What is a leasehold ownership? 

In simple terms, a leasehold ownership means that you own your property, but you do not own the land that your property stands on. Instead, it is usually owned by a leasehold housebuilder or landowner, who might charge a yearly ground rent.

Leasehold ownerships are more common if you live in a flat or an apartment block, but occasionally a house can be on a leasehold ownership.

It’s wise to be mindful of this when purchasing property. 

What is a freehold ownership?

Unlike leasehold ownership, a freehold ownership allows you to have much more freedom with your property; however, this usually comes at a more expensive price. The reason for this is because this ownership type means that as well as owning your property, you also own the land that the property stands on.

This type of ownership is most common for houses but occasionally for a flat or apartment (where you might own a share of the freehold). 

Can you change from leasehold ownership to freehold ownership?

Previously, changing from leasehold to freehold could be a costly process, but it has become far more accessible for homeowners to buy the freehold of their property in recent months due to the Competition and Markets Authority investigation.

What is ground rent?

Ground rent only applies when you are on a leasehold ownership, and you are paying rent to occupy the land that your property is built upon. If your property is a freehold, you will not pay a ground rent as you own the property and the land.  

Historically, ground rent was usually set at a nominal amount, so was rarely a concern for leaseholders. However, the price will be determined by the owner of the land in your leasehold lease agreement and many housebuilders’ have set significant ground rents in recent years, making this more of an issue.

If your lease agreement states a yearly ground rent, you will need to pay this; otherwise, the landowner can request a lump sum or take legal action against you. 

If your lease agreement does not state that you need to pay ground rent, then legally, you do not need to pay it.

What is escalating ground rent?

Escalating ground rent is where the agreed rate will increase every few years. For example, the ground rent might double in price every 5 or 10 years. In some instances, a mortgage lender might not proceed when escalating ground rent is part of a lease.

Escalating ground rent can be avoided; the two most straightforward ways are:

  • Extending the property lease – this will create a new lease with new rules decided by the landlord
  • Varying the lease – this means renegotiating the terms of the existing lease so that escalating ground rent will be completely extinguished

Get expert help to buy the freehold on your home

Our firm has leading expertise in many areas of property law, including the leasehold field of property law. Our solicitors can explain key information in a clear and precise manner to get the best of your understanding, as well as the different options that are available to help you make the right choice. 

We can help determine whether you are eligible to purchase the freehold of your property, and if you do qualify, we can assist with buying the freehold. If, instead, you want to stay as a leaseholder on your property, we can provide you with the appropriate information on extending or varying the lease of your property.

Our leasehold enfranchisement/freehold purchase page gives more information regarding the services we offer. However, if you would rather directly speak to one of our leading solicitors, please get in touch with Ash Oberoi, who will be happy to assist.