Under new Leasehold reform in the UK, ground rents in new, ‘regulated’ leases have now been abolished. The Leasehold Reform (Ground Rent) Act 2022 received Royal Assent on 8 February 2022 and came into force on 30 June 2022. The reforms now make it illegal for any new lease to charge ground rent for anything more than “one peppercorn per year” – effectively removing it from the equation altogether.
Leases covered by the new Act include those that are granted for 21 years or more, are for a single dwelling and are granted after the relevant commencement date of the new Act – from 1st July 2022. The Act covers shared ownership properties and will be extended to apply to retirement properties from April 2023. The Act does not cover business leases, statutory lease extensions of houses and flats, community housing, or home finance plan leases.
The removal of ground rents from leases is a much-welcomed move that addresses the unfairness of onerous ground rent payments for tenants of long leases. Until this point, there has been little legislation around the matter, which left many leasehold homeowners having to pay their property’s freeholder an annual sum of hundreds of pounds. In addition, those leaseholders who found themselves under particularly onerous terms with regard to grounds rents may have found themselves ‘trapped’ in the property, not being able to either sell or obtain a new mortgage.
There are estimated to be 4.6 million leasehold properties in England and Wales – so the reforms will stand to benefit many homeowners. All landlords of residential long leasehold property need to take note of the new legislation, as failure to comply could result in the issue of a financial penalty of up to £30,000.
Although the new reforms are good news for those entering into new leasehold agreements, there is little that existing leaseholders can do, and ground rent terms will remain the same until the old lease has expired. When a homeowner can agree on a new lease with the leaseholder, the new rules will apply, and no ground rent will be payable.
A second bill, which is still in the consultation stage, is intended to make it easier and cheaper for existing leaseholders to extend a lease. However, there is no implementation date yet to be set.
Property owners subject to a leasehold change may seek advice on how the new rules may apply to them.