With the Leasehold Reform (Ground Rent) Act 2022 recently gaining royal assent, changes are being made to the way that ground rents work. The aims of the reform were to curtail leaseholders being charged excessively high ground rents on their properties. This act is the first of two pieces of legislation aimed at making conditions fairer for leaseholders. Here we will go over what the act entails, when the changes will come into force, and what actions are required by leaseholders.
The biggest change made in the Leasehold Reform (Ground Rent) Act 2022, is how much ground rent can be paid. More specifically, the legislation states that on residential leases, ground rent is restricted to being paid by way of peppercorn (non-monetary). This means leaseholders will pay effectively zero ground rent when signing new leases. Additionally, rent administration charges (RACs) are banned in most residential leases with terms longer than 21 years. RACs are the fees paid to a landlord for granting approval under a lease, the provision of documents, or a failure of the leaseholder to pay ground rent or service charges. These changes, however, won’t affect business leases, statutory lease extensions for flats and houses, home finance plan leases, and community housing leases. Furthermore, if a property is sold subject to contract or contracts have been exchanged subject to the completion of the property then ground rent can still be charged. Finally, insurance premiums, rates, service charges, and any charges considered ‘ancillary payments’ are not covered by this legislation.
The Leasehold Reform (Ground Rent) Act 2022 has been given royal assent, and has been announced that it will come into effect on the 30th of June 2022. The act will only affect new leaseholds being signed so ground rent will still have to be paid on old leases. Additionally, if a lease is extended before the terms of the lease expire, ground rent can only be charged until the end date of the initial lease, not the renewed lease. Finally, new leases signed on retirement homes will not be covered by the reform until April 1st 2023 so ground rent will still need to be paid on those.
Whilst no immediate changes need to be made for existing leases due to the Leasehold Reform (Ground Rent) Act 2022, there are some points to look out for when signing new leases. If you are re-granting an existing lease, this will count as a new lease under the legislation. So any inclusion of ground rent will be illegal and landlords seeking it on new leases will be liable to fines between £500 and £30,000. To prevent this it’s important to make sure that landlords take action before the 30th of June.
Overall, whilst the new legislation will benefit new buyers and tenants agreeing to new terms with their landlords, that seems to be the extent of the changes. It bans ground rents and rent administration charges in all future residential leases longer than 21 years. Fines are also being introduced in instances where ground rent is charged on new leases. Make sure to follow our latest news so you can be informed as soon as the second piece of leaseholder legislation is released.
If you are a leaseholder or director of a development looking for more information regarding the changes laid out in the Leasehold Reform (Ground Rent) Act 2022, please get in contact with us here.