Leasehold property owners will be delighted to learn that a change to legislation involving ground rent, brought in over the Christmas holidays, should remove one possible obstacle to a smooth sale.
Recent years have seen a number of changes to leasehold property legislation and regulations, not all of which have made leasehold property transactions easier.
What is Ground Rent?
Ground rent is a feature of leasehold properties and is set out in a Lease when it is granted and will apply to the Lease for the remainder of the term.
Whilst recent legislation has abolished ground rent from new leases, ground rent is still a factor of existing leases, which is one of the main points of consideration when a leasehold property is sold.
What was the problem?
Leases in which the ground rent exceeds £250 per year outside London or £1,000 were caught by a ‘trap’ in Ground 8 of Schedule 2 of the Housing Act 1988 (“Ground 8”). This clause states that where ground rent exceeds those limits, the lease becomes an Assured Tenancy. The clause goes on to state where the rent in one of these Assured Tenancies has been demanded and is unpaid for a specified period of time, then the Landlord can apply to the court for a repossession order, and the court has to grant the order.
Over the last few years, there has been an increase in requests for deeds of variation or indemnity policies during leasehold property transactions where ground rent is over £250 per year (outside London) or £1,000 per year (in London). These requests have been prompted by mortgage lenders who are now aware about the Ground 8 trap and require protection either by a variation of the lease or by an indemnity policy.
What has changed?
The Renters’ Rights Act 2025 (“the RRA”) brought an end to the Ground 8 trap on 27 December 2025. The RRA incorporates a new clause into Schedule 2 of the Housing Act 1988 which includes a fixed term tenancy of a term of more than 21 years as one of the tenancies which cannot be an assured tenancy under Ground 8.
What does this mean for me?
Leasehold properties with a ground rent over £250 per year, or over £1,000 per year in London, are no longer Assured Tenancies: if ground rent remains unpaid, landlords can no longer apply to the Court for possession using this provision.
Does this mean an end to Deeds of Variation or Indemnity Policies?
Yes, provided that the other terms relating to ground rent in the lease are acceptable and not onerous, especially where a mortgage lender is involved.
Solicitors will still have to check mortgage lender requirements to make sure that the level of ground rent payable or, if the ground rent increases, the frequency of those increases, and the way in which they are increased (for example in relation to RPI or doubling) are acceptable to mortgage lenders and their clients. If the rent review provisions are not acceptable, then a Deed of Variation may still be required.
Leasehold properties are the subject of a number of consultations and discussions at government level, with parts of the Leasehold and Freehold Reform Act 2024 yet to be brought in, so there are bound to be more changes in the coming years but this is a welcome ‘Christmas’ present for many leasehold property owners.
At Gardner Leader we deal with leasehold property on a daily basis. If you are looking to buy or sell leasehold property then our residential property team will be happy to help, contact one of our team here.