Leasehold and Ground Rent Reform

Whilst some may not be familiar with the term Ground Rent, it is a common arrangement that is set to change.

The ‘Leasehold (Ground Rent)’ reform became an Act of Parliament on February 8th 2022, it is now law and is effective within six months. The first phase of the Bill is expected to be active by Spring 2022. The reform is the first of a two-part legislative process, becoming part of the most significant changes to property law in recent history.

The Bill restricts the payment of Ground Rent on certain long leases to no more than a nominal ‘peppercorn rent’. It will be a civil offence for landlords to charge more than one peppercorn on any new lease. With fines between £500 and £30,000 if they do not comply.

Ground Rent is an additional charge often found when ‘owning’ a leasehold property, commonly associated with flats and new builds. There is a rent payment for the land leased from the ‘freeholder’, the landlord. This can be a relatively small charge for some, but it’s an extortionate amount for others.

The current leasehold system is outdated and unbalanced. For example, allowing freeholders to take advantage of leaseholders by charging costly Ground Rent fees at their discretion. Which is often increasing the amount without a law that controls them.

The proposed reform to the ‘Leasehold (Ground Rent)’ Bill aims to create a fairer and inexpensive system for leaseholders who have a long lease, of more than 21 years.

Lord Greenhalgh, the Leasehold Minister, has said, ‘Our proposals aim to re-balance power and should see more leaseholders than ever before owning the full rights to their homes. ’

It is vital to remember that certain leases are excluded from this legislation. Both business and statutory lease extensions of houses and flats are exempt. The Bill will not be retrospective, meaning it will not be mandatory for prior ground rent charges to be reduced.

However, if an existing lease is surrendered and then re-entered, the ground rent is limited to the ‘peppercorn’ value, assuming it’s not exempt property. The Bill will apply to shared ownership leases. If a tenant owns a 60% share of their property, the ‘peppercorn rent’ will only be payable on the 60%.

The reforms will see lease enfranchisement become more common. Meaning that individuals might find themselves with additional wealth or transactional matters.

If your clients wish to enter a new lease, looking at purchasing a leasehold or have any such property-related transactions. get in touch with one of the team.