What is Ground Rent Reform and what is its impact on Title Split (Freehold-Leasehold)?

In this article, I am going to cover key changes and Ground Rent Reform for the UK property market in 2024.

Understanding Ground Rent Reform

The Government is implementing a Rental Reform which ultimately means changes for property investors utilising the Freehold-Leasehold system, Title Split. Us Landlords and Property Developers do not currently have all the details of how this Reform will work, but what we can say, is that the current system in place will change to become more ‘friendly’ for Leaseholders. Recently, the Labour Party have stated that they hope to implement this Reform immediately. Many long-term Landlords do not see the changes in the system coming.

Has Ground Rent Reform Torn up the Rulebook for Freehold-Leasehold? How will it Level up the Playing Field for Consumers?

In short, yes. In the past, Landlords have been able to buy Freehold property and Freeholders or developers have been able to sell Freehold at a profit, while consumers or Leaseholders have been charged ground rent. This Reform means that new leases can only charge a ground rent of a Peppercorn, however old leases have escalating ground rents, and this is a long-term issue for Leaseholders. The Government are working to take away this problem from Leaseholders. This means that any Landlords who own Freeholds will find themselves in a position where their value is diminished.

This is why TitleSplit.com say that there is no value in the Freehold in the future. Investors do not know exactly what the Government are going to implement, but it has become common knowledge that it will protect Leaseholders who own the Leasehold elements, of, for example, apartments, to stop escalating ground rents and consumers from being put in an unfair situation.

When Was the Ground Rent Implemented?

The Ground Rent was implemented a very long time ago. Ground rents and the Leasehold System came into place in the 17th century. It was a way that Lords could sell off the Leasehold elements of their building, and through ground rents and holding onto the Freehold, pass on generational wealth. For example, if you were a lord of a manor in the 17th century, and you had land and cottages on that land, you would sell off those cottages on a Leasehold. Over the years, every so often, as the Freeholder, you would maintain the Freehold. Therefore, people would come back to you, and you would regrant their leases and charge them a lot of money to do so. In addition, on an annual basis, you’d be charging them ground rent, which was also putting money into the coffers. With regards to residential property, ground rent is not going to be around for a long time. All new residential leases have moved to a Peppercorn in ground rent in the last couple of years.

What is a Peppercorn Rent and how will Ground Rent Reforms affect Title Split and other Property Strategies?

In the past couple of years, Landlords and Developers have only been able to charge a Peppercorn for Ground Rent, as Ground Rent was a charge that Freeholds levied on Leaseholders. This meant that the Freeholder was making profit out of the Leasehold. This has now changed, and any new leases need a Peppercorn as the Ground Rent. At this moment in time, this does not change the fact that there’s a shared area on the building under which there’s going to be aspects that need repairing. What will change is how we share and divide up the servicing of shared areas of a Freehold building. The positive side of this, is that TitleSplit.com have, and will continue to, train their clients to understand and prepare for this outcome. Unfortunately, there will be property professionals who will get caught out with these changes. It is also important to note that, if you’re creating new apartments, you must only get your Solicitor to charge a Peppercorn in Ground Rent.

How Will Ground Rent Affect Me?

If you understand how to Title Split property properly, you will understand that, for property investors, the value in a block is in the Leasehold apartments, not the Freehold. Property investors moving forward will be making profit on rents through Leasehold apartments, not through Ground Rents. This means the Peppercorn will make no difference if there’s existing Ground Rents.

What are the consequences of not following the Ground Rent Legislation?

It is against the law to not follow Ground Rent Legislation. In fact, if your Solicitor is not using Ground Rent Legislation as the backbone of your lease, then you need to find a new Solicitor!

In Freehold and Leasehold, what is the Marriage Value?

Marriage value could change if we get a new Government. Marriage value is when a developer holds a Leasehold, for example, an apartment, and would like to extend the lease. Leases in the past were 99 years and after the 99 years, the landowner (Freeholder), would charge the leaseholder to extend the lease.

How can I embrace these changes using Title Split?

It is essential for your property business to embrace these changes as they are inevitable. As mentioned before, TitleSplit.com have been training their clients and power team members, including Solicitors, to future proof their leases in preparation for the changes that are coming. As property investors, it is imperative to embrace the change that says the value is in creating leasehold apartments. For example, TitleSplit.com highlight the importance of understanding leases to work towards protecting their portfolio by adding 25-35% in capital uplift and granting 999-year leases as protection against any challenges.

How can I overcome these challenges? Can Title Split help me?

The way to overcome challenges is to get educated in this lucrative strategy and to understand how to manage your power team. Title Splitting is the most challenging property strategy in the property world today, which is why 99% of investors do not Title Split blocks unless they are selling them. The answer is to move quickly to avoid leaving 25-35% equity in the block.