Ground Rent Banned Under Leasehold Reform

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Katy Owen, Associate of Chartered Institute of Legal Executives, ACILEX | 8th July 2022

The Leasehold Reform (Ground Rent) Act 2022 came into force on the 30th of June 2022 and will affect the grant of qualifying new leases from this date in England and Wales. This is a very significant change in legislation and will affect developers, landlords, and purchasers of leasehold properties.

The act was introduced to address the issue of expensive ground rent fees which have recently been causing problems for leaseholders, particularly in cases where the ground rent increased exponentially during the term of the lease.

What has changed?

Traditionally, a tenant under a lease would pay a “ground rent” to the landlord on a perpetual basis for the term of the lease, for example, £100 per annum. Under the new legislation, ground rents on leasehold properties of more than 21 years duration will be banned. Only a “peppercorn” rent will be able to be collected.

A “peppercorn rent” is an old-fashioned legal term used to mean that no actual rent is collected. To make a lease legally valid, the leaseholder has to provide “consideration” to the landlord, meaning the lease should provide for the payment of rent every year. In practice, the Landlord will now not be able to charge any rent, and so the rent is set at one peppercorn per year. This is a way of meaning that you still have a legally valid lease, but one which does not require any actual rent to be paid. In theory, the Landlord could ask you to send them a peppercorn, but this would be very unusual!

The new legislation will affect any new lease granted on or after 30th June 2022. It will not apply retrospectively to existing leases but may apply to lease extensions that create a new lease.

Non-compliance with the new legislation has major consequences. Fines of up to £30,000 could be levied against freeholders who breach these new rules.

There are also a few exceptions – shared ownership properties and leases granted with Islamic finance are not caught by the new law. Leases of Retirement properties will have until 1st April 2023 before they are required to comply.

If you are purchasing a new leasehold property, thinking of extending your lease, or if you are a developer who is planning to sell leasehold properties, you will want to ensure that your lease complies with the most up-to-date legislation.

Please contact us with more details to see how we can help you.