Leaseholders could effectively pay nothing for ground rent under new government proposals.
MPs have backed the setting of ground rents for new properties in England and Wales at “one peppercorn” a year.
The proposals follow widespread concerns that leaseholders are being charged costly ground rents that rise in cost periodically.
However, Labour said the proposals must go further, altogether banning the sale of properties without a freehold.
The Leasehold Reform Bill passed its first stage in the House of Commons unopposed and will now undergo further scrutiny by MPs before becoming law.
When someone buys part of a shared building, including a flat in a converted house or a purpose-built block, it’s usual to own the leasehold, which can last for as long as 999 years.
However, someone else then owns the freehold of the building – the whole property and the land on which it is built. The leaseholder then pays ground rent to the freeholder.
This leaseholder and freeholder arrangement are increasingly being applied to new-build houses, which leads to buyers claiming they have mis-sold a leasehold property by a developer.
The government consulted on capping ground rents on leasehold houses at £10 a year during a consultation in 2018. This new Leasehold Reform Bill would set the ground rent at “one peppercorn” a year.
A peppercorn is a term dating back to the 16th century, referring to a minuscule payment because a single corn of pepper was considered low value.
In the House of Commons, Housing Minister Eddie Hughes described the current system as “a nightmare” for some new house buyers. He said:
“Regardless of whether the ground rent is a nominal peppercorn or thousands of pounds, the fundamental issue is that no meaningful service is provided in return.
“We want to end this for new leases. That’s why we’re legislating so that new residential long leases will have no financial demand for ground rent.
“Instead, nothing more than an actual peppercorn can be collected from the leaseholder.”