Staying grounded? What’s in store for ground rents in 2018

Ground rents remain on the political agenda for 2018. Whilst they allow developers to maximise profits; the consumers who are paying them are of the view that they do not gain anything from ground rents.

The Government Consultation (the Consultation) on ‘Tackling unfair practices in the leasehold market’ published its findings in December 2017 and gives an insight into the Government’s plans to address ground rents in 2018 and beyond.

The primary concern of the Consultation is the rate at which ground rents have risen from small sums to hundreds of pounds per year in the vast majority of cases. To tackle this issue, the Consultation states that the Government will “introduce legislation so that, in the future, ground rents on newly established leases of houses and flats are set at a peppercorn (zero financial value)”. The principle behind this statement being that the costs incurred by landlords in managing a freehold can be recovered either through the service charge or through a marginally higher purchase price. This would provide consumers with greater transparency on their housing costs and ensure they can identify a tangible benefit when making a payment to their landlord.

Whilst the Consultation explores a number of possible solutions in relation to ground rents, the message from the Government is clear: Developers need to proactively address escalating ground rents otherwise legislation will do this for them.