UK: Rising Ground Rent In New Build Homes: Are Solicitors To Blame?

Last Updated: 22 November 2017
Article by Susan Hopcraft

Over the last year there have been reports of newly built properties being effectively worth nothing after just six years due to excessive ground rent charges. A reported example was £101,000 paid for a flat in a new development but lenders then refusing to give mortgages to prospective buyers because a clause in the original leasehold agreement meant owners were liable to pay ground rent to the freeholder that would spiral to £8,000 a year.

The government has recently intervened and some large developers have started to make amends, but what can you do if you either own a property with one of these ground rent clauses, or if you have purchased one of these freeholds as an investment?

Ground rent

When you buy a flat, you can expect to buy a long lease on part of a building, 99 years or more for example, with the stairways and halls necessarily retained and managed by others.  This type of ownership is called 'leasehold'.  The owner of the lease usually pays a ground rent for the right to lease the ground on which the property is built and this is paid to the landlord or freehold owner. 

Where the property is a free-standing house (or even terraced) there is often no good reason for the use of leasehold.  It can be done where there are common gardens needing maintenance, such as retirement living, but in most cases if you buy a house you can expect to buy the whole property, complete with the ground it stands on, known as 'freehold'.  If you buy a freehold you do not pay ground rent.

Traditionally landlords did not tend to actually collect ground rent because it was so small, expressed as a "peppercorn".  The ground rent clause in long leases would usually enable the landlord to increase the ground rent in line with inflation, if necessary.

However, in the last 12 or so years some developers have been selling leaseholds with onerous ground rent and even houses on leaseholds, with ground rents that arguably are not justified at all and which become excessive over time.  This means the developer can sell the land on which the houses stand as a valuable asset, because the freeholder receives the ground rent: but it leaves the house owner vulnerable to high charges and potentially unable to sell their house. These ground rent provisions often come as a huge shock to leasehold owners.

Another typical case is initial ground rents of £295 per year on properties purchased for just under £200,000, which increase to £9,440 per year after 50 years. In addition to the cost of the ground rent, leaseholders can also face difficulties selling or remortgaging.  Mortgage companies, such as Nationwide, will not offer mortgages on new-build properties with short leases or where ground rent is more than 1% of the value of the home.

Sale of the freehold

Ground rents became profitable for developers who sold the freehold to investment companies, allowing them to profit from the annual income. Together with the other costs that leaseholders can be charged, including administration fees and costs of lease extensions, the revenue stream from leasehold properties is significant.  For example, charges of £1,615 for a freeholder's approval for a house extension that was so small it did not even need planning permission.  The term 'fleecehold' has been coined by some reporters.

One of the only solutions to the ground rent issue for the leaseholder is to request to buy the freehold. As the freehold has usually been purchased from the developer as an investment, the freeholder seeks a large sum to part with their investment opportunity.  This will be a disproportionate amount in relation to the actual value of the property, tens of thousands of pounds, making purchase unrealistic for the majority of the leasehold property owners affected.


The Government launched their paper, 'Unfair Practices in the Leasehold Market' on 25thJuly 2017 which proposes to cut out unfair abuses of leasehold title. A prohibition on leasehold new builds is proposed.

Some developers have introduced ground rent review assistance schemes to address the saleability and mortageability of properties affected. In April 2017 Taylor Wimpey announced it would set aside £130 million for a Ground Rent Review Assistance Scheme for its customers facing doubling ground rent terms.  These types of scheme provide the opportunity for leasehold owners to agree a deed of variation which will change their ground rent provisions to more acceptable terms.  Taylor Wimpey's scheme does not apply to those who bought houses from the Taylor Wimpey customers, although we understand that more work is being done to address this gap.

There may still be many leaseholders affected by this issue who did not buy from one of the major housebuilders whose pockets are deep enough to put it right.

Are conveyancers at fault?

If your solicitor did not warn you about an excessive ground rent or an escalation clause before you bought your property they are potentially liable to compensate you.  The issue has been known about for a number of years and you should have been warned about any aspect of the property that could have affected future value.  An unfair ground rent clause is one of those items and it should have been drawn to your attention.  If it was not, your solicitor or conveyancer may have been negligent.

Time limits will apply to your claim so do not delay in taking legal advice.

What if you now own the freehold?

If you purchased a freehold in good faith but now the developer is asking you to amend lease terms to erode substantially the value of your investment then you should seek legal advice concerning whether you are obliged to comply.  The chances are you are not and the developer will need to compensate you for your lost investment. We can advise on the options.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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