The ground rent buy-out right was recommended by the Law Commission and enables leaseholders to buy out their ground rent without extending their lease. As the buy-out is subject to the 0.1% freehold value cap, with some exceptions, the right will be especially useful for leaseholders with high or escalating rents. The right is introduced by clause 21, which introduces schedule 7, where the right is detailed. Ground rent buy-out claims can be brought by the leaseholder serving a rent variation notice on the landlord for the lease to be varied on payment of a premium, so that the rent payable is a peppercorn. The ground rent buy-out amendments, which stand in my name, mostly simplify and clarify the provisions in schedule 7.

Amendments 44 and 75 concern the nature of, and right to, a ground rent buy-out. Amendment 44 would amend clause 21, and amendment 75 would make a similar amendment to the first paragraph of schedule 7. Both have the intention of better describing the nature of the right, and I commend the amendments to the Committee.

I turn now to clause 21 itself. As I have explained, leaseholders with very long remaining leases may want to buy out their ground rent without having to extend their lease. For some leaseholders, adding further years to an already long lease might be considered unnecessary or involve additional costs. The buy-out will be useful to those leaseholders with high or escalating ground rents who find themselves in difficulty when trying to sell or remortgage their property. There is currently no statutory right for buying out ground rent without extending a lease, and a voluntary buy-out, if it could be negotiated, would not benefit from the cap. A new right for leaseholders to buy out their ground rent is therefore necessary.

Clause 21 brings schedule 7 into effect. Schedule 7 makes provision for a new right to buy out the ground rent under a lease with a remaining term of 150 years or more. As we discussed this morning, 150 years was chosen as the threshold for this right so that the term remaining is long enough for the leaseholder to be unlikely to want to extend the lease. A lower minimum term would create a risk that poorly advised leaseholders might buy out the ground rent when an extension is in their interest, only to find that they need to extend later and have to pay for two sets of transaction costs.

On the payment of a premium to the landlord, the lease is varied so that the future ground rent payable is a peppercorn. The buy-out premium is subject to a 0.1% freehold value cap, so any future ground rent payable that exceeds 0.1% of the freehold value of the property is treated in the calculation of the premium as if it is only 0.1% of the freehold value. This ensures that high or escalating ground rents, such as those that were articulated in the Committee’s discussions last week, do not make the premium unaffordable for leaseholders. As such, the ground rent buy-out right will be especially useful for leaseholders with long terms remaining who have high or escalating ground rents. I commend the clause to the Committee.