The Escalating Ground Rent Scandal – what’s it all about?

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The Escalating Ground Rent Scandal – what’s it all about?


In recent months, homes in the UK have been valued at “nothing” and branded “unsellable” and/or “un-mortgageable”, owing to ground rent charges. 


So, what’s it all about?

Traditionally, houses have been sold as freehold interests, meaning that home owners own the whole of their home and have complete control over it.  However, for some years, developers in the North East of England have sold new build houses as long leasehold interests. Their South Eastern contemporaries have now followed suit. 


When a deal is structured in this way, home owners will own their homes but will not have ultimate control over them as they are governed by the contractual provisions contained in the lease. For example, a lease typically contains a clause allowing a freeholder to charge a ground rent - a nominal, fixed, or increasing fee for renting the land on which the home is situated. In recent years, developers have sought to include unfair ground rent clauses in their leases, for example, the doubling of ground rents every ten years.


The Problem

Naturally, the concern is that home owners could face having to pay high ground rents disproportionate to the value of their homes and many find themselves saddled with unsaleable assets. 


Conveyancers are obliged to adhere to the requirements contained in the Council of Mortgage Lender’s Handbook, which provides that ground rent clauses must not be onerous and must not materially affect the value of the property. This has resulted in some high street banks refusing to lend on these properties. These homes are, not unsurprisingly, becoming blighted - their values are being adversely affected and they are only saleable at hugely discounted rates.


The solution?

Critics are putting the Government under extreme pressure to tackle the unfair ground rent abuse. To this end, ministers are proposing a complete ban on new houses being sold as leasehold interests and reducing ground rents to zero.


However, there remains concern for those who are presently affected by the ground rent phenomenon.  Tackling this problem will be far from easy as, regrettably, many developers have sold already their freehold interests, in some cases to anonymous offshore entities.


There is, however, a glimmer of hope as some developers have agreed to buy back a number of freeholds with a view to extinguishing such clauses from their leases. It is hoped that these deals will encourage other developers to compensate affected home owners.


Lauren Kelly

For more information, please contact Lauren Kelly, Solicitor.

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Published: 23 Oct 2017

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