Good News – Ground Rent Changes

For many years Leasehold property owners have been subject to varying, and often costly, Ground Rent.  Whilst many Leases start with what one would consider to be a reasonable, initial Ground Rent, provisions within these Leases set out that the Ground Rent is reviewed periodically using different formulas (sometimes doubling every so many years).  More often than not, the cost of the Ground Rent would escalate upwards considerably making Leasehold properties expensive to live in and own.

The Government have been aware of the pitfalls of Ground Rent review provisions and a Landlords ability to exploit their Tenants when it comes to the cost of Ground Rent and associated fees for quite some time.   Many mortgage lenders also took issue with properties where Ground Rent exceeded £250 per annum outside of London, £1000 inside London or where the Ground Rent doubled periodically, which only added to these concerns.

The Leasehold Reform (Ground Rent) Act 2022 (‘The Act’) is the Governments first real step towards ensuring that those living in and owning Leasehold properties will no longer be penalised and aims to make Leasehold property ownership fairer and more affordable.  This will come into force on 30 June 2022 (although retirement property Leases won’t be affected until 2023).

The Act will put a stop to Ground Rent payments on new residential long Leases for properties in England and Wales, a long Lease being one with a term of more than 21 years.  Where a residential long Lease comes into force on 30 June 2022 or after the Ground Rent must be a peppercorn, in effect making no Ground Rent payable.

Landlords will be banned from charging administration fees for collecting a peppercorn rent, closing a possible loophole where a Landlord could try to make an alternative monetary charge.  Landlords who require a payment of Ground Rent in contravention of the Act will face penalties of between £500 and £30,000.

There are some types of Leases that are excluded from The Act such as short-term Leases of less than 21 years, business Leases, statutory Lease extensions, community housing Leases and home finance Leases further defined by The Act. 

Unfortunately, The Act will not apply retrospectively to existing residential long Leases but by entering a voluntary Lease extension after the start of the Lease, the extended portion of the Lease will be reduced to a peppercorn rent.

If you are purchasing a Leasehold property or own a Leasehold property and want to discuss how the new regulations affect you, please get in touch with our Residential Conveyancing Team.

Author: Amanda Edwards is a partner with Rutherfords LLP

Contact us on: 01827 311 411 or [email protected]