Key takeaways
New residential leases must charge zero ground rent.
The Act ensures that most new long residential leases in England and Wales can no longer include ground rent charges offering greater transparency and fairness for leaseholders.
Non-compliance may lead to financial penalties
Local authorities can fine landlords up to £30,000
Existing leaseholders may seek variations
Informal extensions or deeds can reduce onerous rent
On 30 June 2022, the Leasehold Reform (Ground Rent) Act 2022 came into force. The new legislation is the first step in the government reform package that aims to create a fairer housing system and levelling up opportunities for more people.
Leasehold is a form of home ownership that gives the leaseholder the exclusive right to live in a property for a fixed number of years, known as the term. The right is documented by way of a lease, which is the agreement between the leaseholder and their landlord. The ground rent is the annual charge paid for the long lease to the landlord. However, the use of escalating ground rents (including ground rents that double on a regular basis) has become increasingly controversial, prompting the government to intervene.
The new legislation means that any ground rent cannot be charged at more than one peppercorn per year (which effectively sets the rate to nil). The ban will also apply to retirement homes, but this will not come into force until early 2023.
Any exceptions?
The following are exceptions to the Act:
Existing leases
Leases granted pursuant to contracts exchanged before 30 June 2022
Business leases
Statutory lease extensions
Community housing leases
Home finance plan leases
What does this mean for existing leaseholders?
For those existing leaseholders who choose to extend their leases through the informal (non-statutory) route, the ground rent will be restricted to zero on the newly extended term. This differs from statutory lease extensions, where a landlord is forced to reduce ground rent to a peppercorn for the entirety of the lease term from the date the extension is completed.
Existing leaseholders who do not choose to extend their leases may wish to consider approaching their landlord for a deed of variation to assist with onerous ground rent.
What happens if landlords do not comply?
The Act gives power to local authorities to impose fines up to £30,000 for each qualifying lease if the landlord demands ground rent and does not return payment within 28 days.
What next?
Future measures include a new right for leaseholders to extend their leases to 990 years at zero ground rent and an online calculator to help leaseholders find out how much it would cost to buy their freehold or extend their lease.
The government is also seeking to crack down on escalating ground rents through the Competition and Markets Authority, which has secured commitments with major homebuilders. For example, those who own properties with Aviva, Persimmon, Countryside Properties and Taylor Wimpey will see their ground rent returned to the base rate when they first bought their home.