Leasehold Ground Rent Reform

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The Leasehold Reform (Ground Rent) Act 2022 ("the 2022 Act") is due to commence on the 30th June 2022.

The 2022 Act restricts ground rents payable under future long-leasehold agreements to one peppercorn per year (£0.01 if collected). It also prohibits freeholders from charging an administration charge to collect this rent (thus closing a potential loophole where surrogate ground rent could be collected under the guise of administration charges).

The 2022 Act applies to long-leases of greater than 21 years at point of grant, on a single flat or house, granted after 30 June 2022, and incurring a premium.

The 2022 Act is not retrospective, and does not remove ground rents from leases granted prior to 30 June 2022. Note that the date of grant is the date on which the first leaseholder of a new lease signs that lease. Long-leases granted prior to 30 June 2022 are not affected by their sale to a new leaseholder, unless a fundamental variation to the lease, involving surrender and re-grant of the original lease, is a part of the conditions of sale.

The 2022 Act does not apply to:

  • Intermediate leasehold interests comprising multiple properties.
  • Business leases.
  • Home finance plan leases.
  • Community housing leases.
  • Retirement home leases (until at least 1 April 2023).
  • Statutory lease extensions for leasehold houses.
  • Statutory lease extensions of flats (for which ground rent is already limited to one peppercorn under the Leasehold Reform, Housing and Urban Development Act 1993 ("the 1993 Act").

The 2022 Act applies to leases where there is a deemed surrender and re-grant due to a fundamental variation (i.e. an extension of term or demise), irrespective of whether a premium is charged.

For informal lease extensions agreed outside of the provisions of the 1993 Act, the ground rent restriction will apply for the extension period only. The ground rent terms of the original lease (but not any higher amount) may continue to apply for the remainder of the original term.

Breach of the 2022 Act is a civil offence with penalties of up to £30,000. Trading standards may require repayment of ground rent charged in contravention of the 2022 Act. Tenants may pursue freeholders at the First-tier Tribunal (Property Chamber) for the repayment of unlawfully charged ground rent.

This article was provided by Pro-Leagle - The Law Firm for Laymen

Written by Corinne Tuplin (LLB, LPC) Solicitor, April 2022.