Some questions and answers about the passage of the Zero Ground Rent Act in the UK
On June 30, the UK Leasehold Reform (Ground Rent) Act came into force. The Act, which has been hailed by the British government as "the most significant reform of land property law in 40 years", will lead the UK into the era of "zero land rent", so that landlords who buy a Leasehold property will no longer have to pay land rent. Millions of homeowners will benefit.
As usual, before fully explaining the new law, let's first look at the difference between freehold and leasehold in the UK, readers who are familiar with the difference can skip this part.
Freehold means that the buyer has permanent ownership of the house and the land within the area occupied by the house. Most villas in the UK are freehold properties.
In simple terms, the freehold owner is both the landlord and the owner of the land.
It is important to note that a landowner who chooses to sell the leasehold but retains the land can charge ground rent to the leaseholder.
Leasehold means that the buyer has ownership of the home itself, but the land within the home is owned by another person or the government (for example, a Chinese home with a 70-year leasehold is a leasehold).
The vast majority of apartments (Flats) in the UK are leasehold, generally for 999 years, 250 years, and 125 years.
In short, the owner of a leasehold property is the landlord, not the landlord.
What is Ground Rent in the UK?
Ground rent is a payment made by the owner of a leasehold property to the landlord of the land to which the property belongs. Currently, there are two main forms of ownership in the UK: Freehold and Leasehold.
Freehold.
This refers to the owner of a property and the land it occupies in perpetuity. Most houses are in this category and the owner does not have to pay a separate rent. In addition, the owner of the entire building/land is not required to pay a ground rent.
Leasehold property.
The owner of the property (landlord) owns only the property itself, but not the land on which the property is located; the land belongs to the landlord (landlord). Most condominiums (flats) fall into this category, and the common length of ownership is 999 years, 250 years, and 125 years.
The owner of this type of property is required to pay an annual rent to the landowner (government, developer or third party).
Which properties will the Act apply to?
The Act will apply to all residential leasehold properties (regulatedlease) in England and Wales that are regulated by the UK Land Office and meet the following four prerequisites
1) The effective date of the title lease is after and including June 30.
2) The duration of the title lease, i.e., the option, is not less than 21 years.
3) The form is a separate dwelling.
4) The property has a premium (i.e., a monetary transaction other than rent)
Regarding the exemption from land rent, which groups of people do not apply?
It is worth noting that although the new law officially recognizes the illegality of collecting ground rent, the scope of application is still limited.
The first category of exclusion is shared ownership leases.
Shared ownership means that the purchaser (who pays a minimum of 10%) and the organization (usually a housing association) each own a percentage of the property and hold it jointly.
After the purchase, the purchaser pays rent on the portion of the property owned by the organization, thereby gaining the use of the entire home. The homebuyer can then also gradually buy the full 100% of the equity by saving up for a minimum 1% share.
The second category that does not apply is for those who have purchased leasehold housing before the law took effect (leases replacing pre-commencement leases).
As we said earlier, the Leasehold Reform (Ground Leases) Act is expected to come into force within the next 6 months (only expected, no specific time has been set) and only for leases made after the law comes into force.
This means that until the Leasehold Reform (Ground Rents) Act comes into force, landlords may still be able to collect ground rents, as well as, those leasehold owners who have already signed contracts.
What are the implications of lease renewals and extensions for pre-existing leasehold properties?
When the Act comes into force, if a leasehold property in existence before 30 June 2022 needs to be renewed or extended, a new lease will be signed and no further ground rent will be payable for the extended period, resulting in a significant reduction in the cost of renewals and extensions. For example, for a £500,000 property with 100 years left on the leasehold and a further 90 years, the cost of extension would be between £9,000 and £11,000 based on a current ground rent of £400 per annum. If the land rent is zero, the cost of extension drops to between £3,000 and £5,000.
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The above is for reference only
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Thamesestone Homes is the investment arm of a large UK student accommodation
Thamesestone is the investment arm of a large UK student accommodation and property management company.
The team consists of investment experts who have been working in the overseas real estate market for many years
dedicated to providing Chinese high net worth clients with secure, stable
We are committed to providing Chinese HNW clients with secure, stable and comprehensive overseas asset allocation services.
We specialize in UK school property investments and only recommend properties in areas that are easy to rent or sell.
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