Queen’s Speech 2021: The Banning of New Ground Rents

The Queen’s speech on 11 May 2021 confirmed that ground rents for nearly all new residential leases will be abolished.

The reform will be presented in the Leasehold reform (Ground Rents) Bill and will ensure leaseholders of new, long residential leases cannot be charged ground rent. It is unclear how this will affect properties where contracts have been exchanged, or where only part of the development has been completed and sold on leases with ground rents and the remaining will have to be sold on leases with no ground rents.

It is expected that there will be a few exceptions to the ban such as:

  • Parts of the community-led housing sector so that they can continue with the right to levy ground rent to keep up their ability to promote community activities
  • Specific financial products that depends on leases where the rent replaces the interest bearing mortgage payments
  • Business leases

The banning of new ground rents is one part of the Government’s reform of the residential market. They have also pledged to change the enfranchisement procedure to “make it easier and cheaper for leaseholders to buy their homes”.

The Government has also committed to refreshing the “commonhold” and so we expect to see a Commonhold council set up to prepare leaseholders for the increased uptake of this alternative to leasehold ownership.

The abolishment of ground rents will be welcome news for leaseholders, but investors, developers and property owners will have to assess how this affects their planned and existing schemes. This change will force the market to think about several things such as:

  • Changing ownership structures
  • The effect on reversionary values
  • The new gap in landlords funding
  • Whether landlords will have less of an active interest
  • The effect on mixed-use schemes, retirement properties and student accommodations. Retirement Housing developments have expressed their disappointment that they will not be exempt from the legislation.

If you would like to discuss any points in this article further or are looking for independent advice, please contact Spire Solicitors LLP on 01603 677077.