The beginning of the end for ground rents

In the four months since the Leasehold Reform (Ground Rent) Act received Royal Assent, most landlords have accepted the inevitable and have simply removed ground rent provisions from draft leases unilaterally or have done so on request from buyers. But, interestingly, some are stubbornly refusing to do so until the law actually changes at the end of the month. Perhaps this proves that the new law was necessary.

The interesting question is what difference the abolition of ground rents will make to the pricing of properties sold on new long leases. The evidence suggests a simple answer: precisely none. In other words, developers have been getting something for nothing.

Logically, the abolition of new ground rents should result in higher prices for properties, but the reality is, and probably always was, that the market never priced ground rents in when assessing the value of new-build properties, save perhaps where they were so high that buyers were put off purchasing. Further justification, you might argue, for the new law.

But what about those developments where some units are sold with ground rents reserved and others, yet to be sold, will have no ground rents? Will this in future result in a two-tier market for the resale of flats in the development, with those where ground rents are payable being discounted when compared with those with no rent? Almost certainly not, for the same reason stated above.

But what it might mean is that there will be pressure on sellers from buyers (or more likely from buyers’ professional advisers) to buy themselves out of ground rents by offering a one-off payment to the landlord before completing the sale (or perhaps a corresponding lump sum allowance to the buyer).

Should there, therefore, be a simple statutory formula to calculate the premium payable? Scope for further reform, surely.

Robert Barham is a partner at Forsters