The Leasehold Reform (Ground Rent) Act 2022 was introduced to terminate the ground rents for most of the new long residential leasehold properties that are in England and Wales. The act is the first stage of the government’s plan to make leasehold property ownership fairer, more affordable and transparent for leaseholders.
Why was the Act introduced and what does the Act actually do?
Leasehold is a form of home ownership where leaseholders have an exclusive right to live in the property for a fixed number of years. Normally leaseholders have to pay ground rent to the freeholder, who owns the property outright including the land it is built on. The ground rent is an annual charge for renting out the land on which the property is leased.
In recent years, an increasing number of freeholders have inserted clauses in the lease to increase the ground rent at regular intervals throughout the duration of the lease. This led to a knock-on effect on prospective buyers struggling to obtain a mortgage on leasehold properties and made has made it difficult for leaseholders to sell their property. The controversial escalating ground rent and doubling ground rents has forced the government to intervene by introducing The Leasehold Reform (Ground Rent) Act 2022.
The Act means that in a new regulated residential long lease the ground rent cannot be greater than one peppercorn each year. A ‘peppercorn rent’ essentially means nothing needs to be paid for the ground rent and effectively sets the ground rent to nil.
The Leasehold Reform (Ground Rent) Act 2022 aims to make the property landscape fairer and more straightforward for millions of future leaseholders. The Act will make owning homes much more affordable and it will also prohibit the charging of administration costs in relation to peppercorn rents.
Exemptions to the Act
The following are exempt from the Act:
- Existing residential leases
- Existing and new business leases
- Statutory lease extensions
- Community housing leases
- Home finance plan leases
- Right to buy arrangements
What if you are an existing leaseholder?
If you have a long lease with a ground rent attached to the lease then freeholders can still continue to charge ground rent under the provisions of lease as the act only applies to leases completed on or after 30th June 2022.
Any existing leaseholders who extend their lease through the informal (non-statutory) route will be able to extend their lease with the ground rent restricted to zero.
However, freeholders can still continue to charge ground rent under the provisions of the previous lease (pre-extension). For example, if the landlord and leaseholder both agree to extend a lease, which retains a ground rent, from 80 years to 120 years, then the freeholder will still be able to charge ground rent for 80 years but will not be able to charge ground rent for the next 40 years.
If an existing leaseholder chooses not to extend their lease, they also have the option of contacting their landlord to enter into a deed of variation, which is an agreement between the landlord and leaseholder to vary the terms of the lease, to deal with onerous ground rents.
What actions can be taken against landlords?
There are sanctions in place for non-compliance of the Act.
If a landlord were to make breaches of the Act, the landlord will be invited to a make a written representation about the alleged breaches of the investigation, in which the landlord will then have 28 days to respond to the notice.
The landlord must refund the payment within 28 days of which the payment has been made. If the landlord fails to refund the payments that has been taken wrongly within the 28 days period, then they could be investigated by the enforcement authority.
The actions the authority can take against the landlord includes:
- Financial penalty – Where it has been found with sufficient evidence that the landlord has committed a breach, the landlord may be required to pay a financial penalty of between £500 and £30,000.
- Recovery order – The recovery order can be made by the enforcement authority, against either the landlord or the person acting on behalf of them, of which receives the prohibited rent payment.
Specialist Leasehold Advice
Monarch Solicitors specialist Leasehold Solicitors provide a tailor-made approach to your needs and can help with a range of Leasehold related issues. Please contact us by either calling 0330 127 8888 or emailing [email protected] for an initial consultation.
