Leasehold Reform: The End for Ground Rent


But what does that mean? The Leasehold Reform (Ground Rent) Act 2022 was given royal assent earlier this year and came into force on 30th June 2022. This marks a monumental change in property ownership law, one that many commentators have been predicting for some time.

The effect is that from 30th June 2022, no new residential lease, whether for a house or a flat, can have a ground rent of more than a “peppercorn” (which is a legal term for a nominal sum of essentially nothing). This is to bring leasehold ownership more in line with freehold ownership.  There are a couple of exceptions of course, including

  • Certain community led housing
  • Certain financial products; and
  • Business leases
  • Retirement properties (where the effect of this legislation comes into force on 1st April 2023)

Why is this important? Well, for leaseholders, it means an end to charges which had the potential to become prohibitively expensive in the future. Many older residential leases had ground rents which would increase over time, some as much by doubling periodically throughout the term. This will no longer be possible for any new leasehold dwelling.

The change is a bit more disadvantageous for Landlords, as no more ground rents mean a dent in their income, but a silver lining is one less administrative burden.

What if my lease has a ground rent? This will depend – for new leases granted after the 30th June 2022, the ground rent is illegal, and a tenant can recover any rent paid from the Landlord, and has a right to apply to the First-Tier Tribunal (Property Chamber) in England for a declaration that the ground rent is struck out and replaced with a ‘peppercorn’. In addition, a Landlord may be issued a fine of up to £30,000 for ground rents demanded in breach of the Act.

For leases before the change, the ground rent continues to be legal, and should continue to be paid. Landlords need to be very careful however, as any variation of the lease that would operate as ending the old lease and granting a brand new one (called a “surrender and re-grant”), will be caught by the Act, and might inadvertently cause a prohibited ground rent to be demanded. This most often happens in the grant of a lease extension but could apply to other terms too.

Summary

  • The new provisions came into force on 30th June 2022 (except in relation to retirement properties)
  • Any new lease (including a variation that would operate as a surrender and re-grant) cannot have a ground rent other than a ‘peppercorn’.
  • Leases entered into before 30th June 2022 are not affected, and ground rent can continue to be demanded.
  • Landlords need to be careful of inadvertent surrender and re-grant when considering varying lease terms.
  • Enforcement action can be taken against Landlords (or their agents) for prohibited ground rents including hefty fines, recovery of the illegal ground rent and Court order variation of the rent provisions in the lease

If you need advice on leasehold matters, contact our Property team on 01638 560556 or email us on solicitors@edmondsonhall.com

 

Author: James Southward, Chartered Legal Executive | Edmondson Hall Solicitors & Sports Lawyers

James Southward