New Leasehold Reform (Ground Rent) Act 2022 is now in force and sees the abolition of ground rents for most new (regulated) long residential leasehold properties in England and Wales. Royal Assent was granted on 8 February 2022, and the Act came into force on 30 June 2022. This post briefly overviews the new Ground Rent Act and how it impacts residential landlords, developers, and residential leaseholders.
What is Ground Rent?
In its most simple form, ground rent is a rental payment paid annually by owners of residential long leases to their landlord. Ground rent is paid under the terms of a lease for the occupation of part of an area of land and anything occupying that space. These controversial annual costs have been known to run into hundreds of pounds a year, provide no clear service in return and can be set to escalate regularly, with a significant financial burden for leaseholders. Until now, legislation has not covered ground rent, leaving leaseholder property owners vulnerable.
What is the Leasehold Reform (Ground Rent) Act 2022?
The Leasehold Reform (Ground Rent) Act 2022 represents the first stage of the government’s aim to make leasehold property ownership fairer and more affordable. From now on, landlords of regulated long leases in England and Wales cannot charge a leaseholder a ground rent charge of more than one peppercorn per year (in other words, zero rent). The peppercorn limit generally only applies to new residential leases that were granted after the Act’s commencement, which are granted on or after 30 June 2022. If you bought a new (regulated) lease after this date, you will not be faced with financial demands for ground rent. A long lease is one with a term of more than 21 years. The Act also bans landlords from charging administration fees for collecting a peppercorn rent. If a landlord charges ground rent in contravention of the Act, they are liable to receive a financial penalty between £500 to £30,000.
For further explanation of the operation of the Act, you can find more information here: Leasehold Reform Ground Rent Act User Guide
What are the current exceptions of the new leasehold reform?
A temporary transition period applies to regulated leases of retirement homes, which means the Act will not come into force for these leases any earlier than 1 April 2023.
Some types of leases are excluded from the Act, including business leases, statutory lease extensions, community housing leases and home finance leases.
How are lease extensions affected?
Leases already in existence are not affected by the new leasehold reforms, so regulations around statutory lease extensions for houses and flats remain unchanged and are not covered by this Act. Although, statutory lease extensions for flats must already be granted at a peppercorn (regardless of this Act).
However, if an existing lease is surrendered and re-granted, it may be caught by the Act – and the new regulations surrounding ground rent will apply. Lease extensions are a complex area of law, and it is essential that you speak with a specialist property lawyer who fully understands the various processes involved. Our property team can help landlords and tenants with residential leasehold extension matters and disputes.
What do Landlords and Property Developers need to be aware of?
If you are purchasing a leasehold property and your new lease demands ground rent, you must ensure it is not for more than one peppercorn per year and that no admin fees are charged for collecting the peppercorn rent. If you believe a landlord is in breach of these rules, or you have been wrongly required to pay and have paid a prohibited rent on a property regulated by the act, you should speak to your landlord to request that they repay the amount within 28 days, as the Act requires them to do. If your landlord does not respond and you want to take further action, our dispute resolution team can help advise you of the next steps and the options open to you.
What does it mean for people who currently own a leasehold property?
Currently, the Act only applies to new residential long leases on or after 30 June 2022, so if you have an existing lease, your current terms will not change. However, the government has pledged to address the issue of paying ground rent under existing leases in the future as part of their ongoing reforms to leasehold legislation. Additionally, announced last year, future measures include a new right for leaseholders to extend their leases to 990 years at zero ground rent and an online calculator to help leaseholders determine how much it would cost to buy their freehold or extend their lease.
This blog post is not intended to be taken as advice or acted upon. If you are seeking legal advice, please get in touch with our team of solicitors