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The impact of the ground rent scandal on purchasing leasehold property

What is the ground rent scandal?

Leasehold houses in the UK – and the exploitative ground rents their owners are obliged to pay – have caused plenty of commotion in the housing market over the past year.

The ground rent scandal involved developers selling new build homes to unwary buyers, often with leases raised to 999 years. Prospective buyers were not informed that the developers had inserted leasehold contract clauses that meant their ground rent would double every ten years.

This left buyers trapped as spiralling ground rent prices meant that their properties quickly became unsellable. Many solicitors who did not warn buyers of these terms are now liable for professional negligence and conflicts of interest.

The issue has been compounded by mortgage lenders, most famously Nationwide, refusing to grant mortgages against homes with ‘onerous ground rent clauses’.

Although this is definitely in the interest of prospective buyers seeking to take out a mortgage with Nationwide, it only worsens the situation of those trapped in unfair contracts.

What protection is available to leaseholders?

The 1993 Leasehold Reform, Housing and Urban Development Act allows leaseholders to extend their lease by 90 years and lower their ground rates to ‘peppercorn’ (i.e. nothing).

In 2017 the government proposed to reduce ground rents to zero as part of their ban on the sale of new leasehold houses.

Nevertheless, the government ban has done nothing to help people trapped in unsellable properties and extremely high ground rates are still being agreed.

The unfair ground rents charged on many leasehold houses and flats affect all leaseholders, not just those directly impacted.  The scandal has raised demand – and therefore the cost – of freehold property, forcing many buyers to turn to leasehold property as the only way of getting on the property ladder.

If you are in this position, it is vital that you take steps to protect your leasehold investment by:

  1. Ensuring that the property is not subject to the doubling clause or any other unfair terms before making a purchase
  2. Extending your lease as soon as possible

Why are lease extensions so important?

A leasehold is a ‘depreciating asset’, meaning its value will drop over time. Extending your lease is a way of safeguarding your investment and ensuring that your property does not become difficult to sell, or sellable only at a low price.

If you’re considering applying for a lease extension, make sure that:

  1. You have lived in the property for more than two years
  2. Your lease was valid for more than 21 years when you initially bought the property


The most important factor to bear in mind when considering a lease extension is that the shorter the lease, the more expensive it is to extend.

In order to extend your lease, you will have to pay your landlord a fee known as a ‘premium’. If you own a property with a lease term of less than 80 years, this premium will be considerably more expensive thanks to Marriage Value.


Marriage Value is the difference between:

  1. The price of the property with its existing lease
  2. The price of the property once the lease has been renewed


Marriage Value must be split fifty-fifty between the leaseholder and the landlord when the lease has been extended. Therefore, the longer the lease is at the time of extension, the lower the cost for the leaseholder.

The owner of a leasehold flat is legally entitled to a 90 year extension under the 1993 Leasehold Reform, Housing and Urban Development Act. This means that 90 years will be added to the existing lease; so a flat with 80 years would gain a 170 year lease after extension. Once you have extended your lease by 90 years, you can then reduce your ground rent to peppercorn.

The importance of extending a lease before it drops below 80 years cannot be overstated. Owners who let their leases run on risk being in the same position as those trapped by doubling ground rent clauses – trapped in an unsellable property, while the cost of lease extensions and ground rents continue to increase.

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