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THE LEASEHOLD REFORM (GROUND RENT) ACT 2022

February 6, 2023

An Overview:

On 30 June 2022, the Leasehold Reform (Ground Rent) Act 2022 (“the LRGRA 2022”) was introduced as part of the Government’s proposed reform of the leasehold property system following increased publicity about ground rent increases.

Leasehold property is a type of property ownership which gives the leaseholder the right to own the property for a fixed amount of time, done by way of a lease, in agreement with the landlord. A lease formally sets out the period in which you will own the property.

The main purpose of the LRGRA 2022 is to restrict annual ground rent to one peppercorn on new long leases of flats and houses (long leases meaning for a term of more than 21 years). One peppercorn amounts to zero financial value, that is not demanded or charged by the Landlord.

The LRGRA 2022 also prohibits the charging of related administration fees in relation to collecting ground rent. The act will take effect not before April 2023 for retirements homes.

It is important to note that the LRGRA 2022 will not apply to existing leases and will not apply to leases granted where contracts have exchanged before 30 June 2022 (for more information on exchange of contracts please see ‘Buying a Property/ 101’) meaning that a landlord is within their rights to collect ground rent from the leaseholder. If exchange occurs after the 30 June 2022, the LRGRA 2022 will apply, and ground rent will be one peppercorn.

Additionally, the LRGRA 2022 will also not apply to the following:

  • Business leases;
  • Statutory lease extensions of houses and flats;
  • Community housing leases; and
  • Home finance plan leases

What impact will the LRGRA 2022 have on Landlords?

A number of landlords and major developers had already abolished ground rent charges from their leases in anticipation of the LRGRA 2022. This is due to the financial penalties (between £500.00 – £30,000.00) and orders (that any prohibited payments already made can be recovered) that can be imposed if landlords continue to collect ground rent.

Landlords and developers should consider their position in relation to leases that are being entered into if exchange of contracts has occurred prior to 30 June 2022. If a landlord legally continues to charge ground rent, it may cause prospective tenants to reconsider their options, as leaseholders run the risk of paying more compared to a neighbour in the same development.

What impact will the LRGRA 2022 have on Tenants?

Simply, the act will release leaseholders from paying Ground Rent on residential properties.

If you are an existing leaseholder wishing to extend your lease after two years of ownership, the ground rent will be reduced to one peppercorn on the new lease.

If you intend to extend a current lease by way of surrender and regrant, the ground rent will be a peppercorn, in accordance with the LRGRA 2022.

If you cannot formally extend your lease, you should consider contacting your landlord to enquire about removing any ground rent from the Lease. This can be accomplished by entering into a deed of variation.

Gov.uk has published guidance which can be found by the following link: https://www.gov.uk/government/publications/the-leasehold-reform-ground-rent-act-user-guidance/leasehold-reform-ground-rent-act-2022-guidance-for-leaseholders-landlords-and-managing-agents

If you are a landlord or tenant and wish to discuss the Leasehold Reform (Ground Rent) Act and its impact on you, please contact our property team on 0121 7057571 or email enquiries@wallacerobinson.co.uk

James Sawyer
Paralegal – Commercial and Development Department

References:

https://www.gov.uk/leasehold-property#:~:text=You%20only%20own%20a%20leasehold,lease%20comes%20to%20an%20end.

https://www.gov.uk/government/news/future-homebuyers-to-be-freed-from-expensive-ground-rent-bills-on-30-june

https://uk.practicallaw.thomsonreuters.com/w-034-4170

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