Impact of The Leasehold Reform (Ground Rent) Act

16 August 2022

The impact of The Leasehold Reform (Ground Rent) Act 2022, which aims to offer homeowners a fairer deal.

Investor landlords and long-leasehold tenants are feeling the effects of a major shake-up of the law which effectively restricts ground rent to zero.

The Leasehold Reform (Ground Rent) Act 2022 (LRGRA) took effect from June 30 this year and was introduced following widespread publicity about unfair ground rent increases.

Ground rent is, essentially, the annual amount a leaseholder must pay to the property freeholder for use of the land the building sits on.

The Government responded having faced increasing pressure to deal with such onerous ground rents across this sector, which saw some homeowners paying hundreds of pounds of year and receiving no clear service in return.

The new Ground Rent Act limits ground rent in most new long residential leases to a peppercorn, which essentially restricts the ground rent to zero financial value.

This Act will only apply to long residential leases, meaning leases exceeding 21 years.

The Ground Rent Act came into play for most new long residential leases from June 30, 2022, although it will only become effective on April 1, 2023 for retirement homes, which provides the retirement sector additional time to transition.

Anyone buying a home today on a new long lease is now freed from these annual ground rent costs forever, helping homeowners manage their bills as they face cost of living increases.

The ground rent restrictions apply to long leases of single dwellings granted for a premium on/after June 30. The landlord/anyone acting on its behalf, must not ask the tenant for payment of prohibited rent/fail to refund such payment within 28 days.

The Ground Rent Act also puts in place a statutory procedure, under which a tenant/landlord can apply to the First-tier Tribunal or England/the Leasehold Valuation Tribunal in Wales, for a declaration regarding the effect of the Act on the terms of a lease.

The Tribunal can make the landlord make an application to HM Land Registry to enter the declaration in the registered title and tenants can apply to do in any event.

This Act also amends schedule 11 to the Commonhold and Leasehold Reform Act 2002 to make sure that no administration charge is payable for collection of ground rent restricted to a peppercorn under the Leasehold Reform (Ground Rent) Act 2022.

Another significant benefit of the Act is that the level of ground rent reserved by some long residential leases can cause them to fall within the definition of an assured shorthold tenancy, which gives the landlord termination rights. With the Act limiting the ground rent to a peppercorn, this resolves this problem.

Local authorities will be able to impose financial penalties for breaches, on landlords/former landlords, currently from £500-£30,000 per lease, so compliance is crucial.

A lease in breach of the Leasehold Reform (Ground Rent) Act 2022 is not void.

Short term leaseholders are still liable for ground rent fees – and often formal lease extension is advisable. This adds a minimum of 90 years to the length of a lease and automatically reduces any ground rent to zero.

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