On 8th February 2022, the government passed the Leasehold Reform (Ground Rent) Act 2022. This long-awaited legislation will effectively abolish ground rents for almost all new residential leases and non-statutory lease extensions. The Act will mean that ground rents on most new long residential leases on England and Wales must be a “peppercorn” rent per year. This means the financial value of the ground rent will be zero.

Regulations, made by the Secretary of State, will come into force, and the new act will be fully implemented on 30th June 2022.

What is the issue being addressed?

Ground rents are paid by leaseholders to their landlord (the freeholder) for the land on which their home is built. The higher the ground rents, the more valuable the freehold is, and the more expensive it will be to extend your lease.

Doubling rents, and ground rents which increase too frequently or by reference to a formula which results in a large increase, have long been recognized as undesirable. But it is only recently that reforms were proposed to “make home ownership fairer and more secure”. Unfavorable ground rent terms can affect the value of your property, and your ability to sell or mortgage it. Mortgage lenders are now more cautious on lending money against leasehold properties where ground rents are not reasonable.

What improvements are being made?

The Government has (indirectly) intervened in relation ground rents previously, with those purchasing new build properties, and using the Help to Buy Equity Mortgage scheme, can only be granted leases which have a peppercorn ground rent clause. This effectively means that developers were stopped from imposing monetary ground rents at the end of March 2021 on sales of new build properties.

The issues now faced by thousands of leaseholders will no longer be replicated going forwards.

The new Act applies to new leases and non-statutory lease extensions. For non-statutory lease extensions, the peppercorn rent only comes into force after the original term is complete, so the existing ground rent continues to be charged for the existing term but cannot be altered. Effectively it is capped. After the existing lease term expires, only a peppercorn ground rent can be imposed.

A variation to a lease that would be classed as a surrender and re-grant will fall within the scope of the Act.  Landlords must think carefully before agreeing to such variations as they may inadvertently be caught by the terms of the Act and the ground rent then reduced to a peppercorn

The sanctions for non-compliance with the Act are fines of between £500.00 and £30,000.00.  Tenants may also have the right to apply to the First-Tier Tribunal to recover rents which have been paid but which are prohibited.

What can I do to check my ground rent provisions?

If you have any queries on whether your lease contains unreasonable ground rent provisions, it may be worth having the lease inspected before you have to sell or remortgage your property. This means that any issues can be dealt with in advance.

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