Around 20,000 total homeowners will be compensated, or see their ground rents remain at the original amount, as a result of a 2019 investigation, resulting in over 5,000 people waiting to receive compensation.
This comes after the Competition and Markets Authority (CMA) took action to stop skyrocketing ground rent costs. Additionally, 'unfair' clauses in their contracts permitting ground rent to be increased every ten years will be erased.
In contrast to freehold property, owners of leasehold properties do not possess outright ownership, but are permitted to occupy for a specific time period, usually between 99 and 125.
What distinguishes leasehold from freehold?
The leaseholder is still the owner of the land on which the property is situated. The land on which the property is located continues to be owned by the freeholder. It is subject to annual ground rent charges from the homeowner.
However, many homeowners now pay annual ground rent fees that have drastically increased since property developers sold the freehold to other businesses. This has made it difficult for the occupiers to sell their homes or take out a mortgage on them.
The CMA's interim chief executive, Sarah Cardell, stated: "Leaseholders have been subjected to what we perceive to be unfair practices for years. We launched legal action against some of the top names in the industry in an effort to address the issue.
Why is this happening?
Traditionally, leaseholds only applied to apartments. A majority of home buyers would want to own the freehold. However, there has been a tendency among developers to offer homes on a leasehold basis in recent years. According to government research, freehold property owners see their leasehold properties as a reliable source of income. Certain ground rentals increased every ten to fifteen years.
In fact, research by the industry group NAEA Propertymark found that owners of leasehold homes were collectively paying £447 million in ground rent each year. It was discovered that the typical renter paid £319 a year. One-third of homeowners said they would be unable to continue making ends meet.
Additionally, the estimated 4.5 million leasehold residents will soon be granted the option to extend their leases for an additional 990 years with no ground charge, the government has recently stated.
To assist them in determining how much it would cost to purchase their freehold or prolong their lease, it will provide an online calculator.
Try The Leasehold Advisory Service's lease extension calculator.