Your guide to the Leasehold Reform (Ground Rent) Act 2022
The Leasehold Reform (Ground Rent) Act 2022 will come into effect on 30th June 2022. It received Royal Assent and became law on 8th February 2022.
The Leasehold Reform Act puts an end to ground rent for new and qualifying ‘long’ (a lease with a term of more than 21 years) residential leasehold properties in England and Wales. It is said to be one of the most significant changes to property law in over a decade.
In this blog, our property solicitors look at the Act in more detail and how it will affect property developers, landlords and buyers of leasehold properties.
How does the Leasehold Reform Act change the current law?
The Act aims to lead to fairer and more transparent home ownership for future residential leaseholders and to prevent some leaseholders from being trapped by escalating ground rent reviews.
For any new, qualifying long-term residential leases commencing on or after 30th June 2022, the law will now prohibit any ground rent for more than one peppercorn (rent that has no financial value) from being demanded.
The Ground Rent Act also bans payment of administration charges for collecting ground rent, but landlords are still permitted to charge for services to the management company.
Why is peppercorn ground rent being limited?
Peppercorn rent means that it has no financial value, and refers to the traditional practice of giving a peppercorn as a token to make a binding contract.
As well as protecting leaseholders from escalating ground rent costs, the limit on peppercorn rent ultimately aims to create fairer, more transparent ownership for leaseholders in England and Wales.
Will the Act apply to my lease?
The Act will only apply to residential long leases which are granted for a premium in England and Wales from and including 30th June 2022.
The Leasehold Reform Act does exclude some leases, however, including commercial leases, community housing leases, statutory lease extensions of houses and flats, and ‘rent to buy’ arrangements. These are considered ‘excepted leases’ which fall outside the Act.
The law also differs for landlords under a shared ownership scheme.
When will the Leasehold Reform Act come into effect?
The Act had six months to come into force after it received Royal Assent in February. The commencement date has now been announced as 30th June 2022. If a new leasehold contract exchanges before the commencement date, the Act will not apply.
For leases of retirement homes, the earliest commencement date could potentially be 1st April 2023.
Are there penalties for non-compliance?
Any residential landlord demanding a higher ground rent on a qualifying lease could face a fine of up to £30,000 per lease if any payment is not returned within 28 days.
It is essential that landlords familiarise themselves with this Act to avoid any penalties or liability for non-compliance. Enforcement action can be taken against both past and current landlords, and anyone acting on their behalf.
Further information
Leasehold properties have become increasingly popular in recent years, especially in cities such as Bristol where house to flat conversions and new builds are popular.
Whether you are a landlord seeking advice on ensuring your rent charges reflect this change in law, or you are a property developer who is considering the next steps when planning development work, we can help.
We advise landlords and developers across the UK from our offices in Bristol and South Gloucestershire. For straightforward advice, call our property solicitors on 0117 325 2929 or fill out our online enquiry form.