Peppercorn for new build

Stevecapegoat

Hi All,

I am a first time buyer looking at purchasing a new build due to complete between September (2022) and January (2023). I have just reviewed the ground rent which is being charged at £250 per annum. However I also became aware of the "Leasehold Reform (Ground Rent) Act 2022" which suggests that from June 30th in England and Wales it would be illegal to charge a ground rent on any long term leases. Is this something which would apply to this build. I have questioned the developer on this who said it would not as they have sold 90% of contracts with ground rents already included and it would not be possible to recreate the contracts, further to this I was advised that this would really only be available on new builds scheduled to complete in 2024 >

any help here would be greatly appreciated!

Many thanks,
Steve

Sandtree

It'll be illegal to charge ground rent more than 1 peppercorn per year for new leases entered into after 30 Jun 2022 (later for retirement properties) assuming it doesn't fall into one of the exclusions and the lease is greater than 21 years in England and Wales.

https://www.gov.uk/guidance/leasehold-reform-ground-rent-act-2022

eddddy

What you say seems broadly correct - for new leases created after 30th June 2022.


I wonder if the issue is that the developer has created the leases in advance (i.e. therefore before 30th June) with £250 ground rents, so you will be buying an existing lease, rather than buying a new lease.


I believe that developers sometimes create all the leases in advance, so that they can sell the freehold, before they sell any of the the leases.

It makes it easier to sell the freehold that way. They haven't sold any leases so they don't have to give any leaseholders the "right of first refusal". Plus they get the money for the freehold sooner.

But I'm no expert on this stuff - so it's a bit of a guess.

Stevecapegoat

Thanks both for your replies. It was unclear from the developer as to why the ground rent would persist so I have withdrawn from the sale. There reasoning was that the majority of contracts had already been completed with ground rent and they would not be able to change them. however I would have thought it was on a basis of per person? In any case Im glad to have withdrawn and will wait till I find such a place with 0 ground rent.

SeanG79

As above, I expect the lease already exists with with the £250 ground rent - for example all leases started 1/1/2022 and so they are selling on the lease so to speak.

This is the case with a new build we are currently purchasing, except the ground rent is at £0 in all the leases.

GDB2222

A ground rent of £250 pa can be sold on by the developer for £5-10k, depending on the increases built in. Will house prices for new builds now increase commensurately?

Sandtree

eddddy said:

What you say seems broadly correct - for new leases created after 30th June 2022.


I wonder if the issue is that the developer has created the leases in advance (i.e. therefore before 30th June) with £250 ground rents, so you will be buying an existing lease, rather than buying a new lease.


I believe that developers sometimes create all the leases in advance, so that they can sell the freehold, before they sell any of the the leases.

It makes it easier to sell the freehold that way. They haven't sold any leases so they don't have to give any leaseholders the "right of first refusal". Plus they get the money for the freehold sooner.

But I'm no expert on this stuff - so it's a bit of a guess.

No legal eagle either, and certainly not in this area, but surely if there is a lease then there must be a leasee and that leasee must have paid stamp duty when acquiring the lease? A potentially expensive exercise to try and get some ground rents in before any further legislation is made to abolish all ground rents

user1977

Sandtree said:

eddddy said:

What you say seems broadly correct - for new leases created after 30th June 2022.


I wonder if the issue is that the developer has created the leases in advance (i.e. therefore before 30th June) with £250 ground rents, so you will be buying an existing lease, rather than buying a new lease.


I believe that developers sometimes create all the leases in advance, so that they can sell the freehold, before they sell any of the the leases.

It makes it easier to sell the freehold that way. They haven't sold any leases so they don't have to give any leaseholders the "right of first refusal". Plus they get the money for the freehold sooner.

But I'm no expert on this stuff - so it's a bit of a guess.

if there is a lease then there must be a leasee and that leasee must have paid stamp duty when acquiring the lease?

SDLT would only be payable on the consideration actually paid, not the value of the property. I think it is commonplace to have all the leases commencing on the same date (nothing to do with the new legislation).

koalakoala

I would have pulled out too, just on principle