The Leasehold Reform (Ground Rent) Act 2022

What is it and what does it mean?

On Tuesday 8th February 2022, the Leasehold Reform (Ground Rent) Act 2022 received Royal assent and became law. Subsequently Lord Stephen Greenhalgh, Minister of State for Building Safety and Fire, announced that this landmark ban will take effect on 30 June 2022, for most new residential leases.

What is it?

Effectively, it is a ban on Ground Rent for most new (and only new), residential leases in England and Wales.

What is Ground Rent?

Historically, the leasehold system dates back to the time of William the Conqueror who declared that all land belonged to him. Estates were apportioned to Lords and the gentry, who were then in a position to charge everyday folk who lived on that land for living there. This is the earliest form of a lease.

Today a lease system, and therefore the charging of annual Ground Rent fees, applies where multiple properties exist on the same piece of land. This includes, flats, maisonettes, cojoined properties (and other situations) where there is a Freeholder and leaseholder(s).

Note: Ground Rent is a completely separate charge to monthly rent and/or services charges.

Ground Rent may be termed ‘peppercorn’, a fee of £0.01 or so small that it has no financial value and is never collected. However, in other cases, there can be an annual fee of anything from £50 to significantly more. Furthermore, some landlords seek to raise the Ground Rent on a regular contractually defined basis, which has seen these fees becoming disproportionate and therefore unfair. Hence the need for reform.

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these charges provide no clear service in return and can be set to escalate regularly, with a significant financial burden for leaseholders.”www.gov.uk

What does the Act mean?

Fundamentally, the Act aims to make leasehold ownership fairer and more affordable for leaseholders, however, it only applies to new residential leases*. It will not affect existing and older properties already in a leasehold agreement. Which is of great disappointment to aggrieved existing leaseholders, who are subject to the whims of less scrupulous landlords.

Who will benefit?

Future homeowners purchasing a long (more than 21 years) leasehold property will no longer be burdened with the annual Ground Rent fees. From 30th June 2022, Landlords will simply be banned from charging Ground Rent, nor can they charge any administration fees associated with it. Landlords who seek to demand ground rent after the Act has been passed will be liable to fines of between £500 and £30,000 and will be required to repay any unlawfully collected ground rents with interest.

Who doesn’t it apply to?

The Act is not retrospective and excludes business leases, statutory lease extensions of houses and flats, community-led housing leases and home finance plan leases.

Retirement properties

It also excludes retirement properties (for the over 55s) for the present. The provisions will not apply in this case until 1 April 2023 at the earliest ,and if a voluntary lease extension is granted the Act will only be applicable on expiry of the original term.

A work in progress

The Act has been long expected and much debated, but is just the first step in a series of government reforms intended to deal with perceived unfair practices in the leasehold market.

If you have any queries about your rights as a Landlord you are welcome to discuss your property management needs with our experienced team.  020 3637 7968   INFO@MIHPROPERTY.CO.UK

*Please note, this article seeks to explain the Act and does not constitute legal advice. MIH accepts no responsibility for exact accuracy of the information and should you chose to act on it, you do so at your own discretion.