The Leasehold Reform (Ground Rent) Act 2022 (The Act) will come into force on 30th June 2022 and will bring about significant changes to ground rent provisions in leases.
Historically, ground rents were a nominal amount but in the early 2000s when development of new property was at a peak, Freeholders started to incorporate clauses into leases which made the Leaseholder contractually bound to pay increasing ground rents. The ground rent would usually start low, for instance, £250 per annum, but then escalate or double every 5 to 10 years leaving the Leasehold with a high ground rent to pay, along with increasing living costs, mortgages etc. With most leases being for at least 90 years, this meant disastrous circumstances for Leaseholders. The Ground Rent scandal was bought to the forefront by the media in 2017 and a consultation was started by the government and the Law Commission.
The Act was a result of the Law Commission’s consultation and once it comes into force, ground rent in new regulated leases cannot be more than “one peppercorn per year”. This will mean that no money can be legally demanded from the Leaseholder. The Act also bans Freeholders from charging administration fees for collecting the peppercorn rent.
A regulated lease is a long lease of a dwelling which is granted for more than a term of 21 years, where a premium is paid and one that starts after 30th June 2022. There are exceptions such as certain business leases, statutory lease extensions, community housing plans and home finance plans. The Act will also apply to leases where the Freeholder has agreed to extend the lease voluntarily.
The Freeholder may be fined up to £30,000 where a ground rent is charged in contravention of the Act.
Freeholders must be careful not to inadvertently end their rental income by varying a lease that may constitute a surrender and regrant of the original lease.
Leaseholders may find some resistance in agreeing voluntary lease extensions as there is little incentive for Landlords to extend unless they agree to extend at a higher rent but no premium.
For further information on the issues raised, please contact Sarita Ghere at
Branch Austin McCormick LLP
32 St James’s Street
London
SW1A 1HD
