Following widespread calls for change, the Leasehold Reform (Ground Rent) Act 2022 will finally come into force at the end of this month on 30 June 2022, the exception being retirement properties which will not be affected until 1 April 2023.
The Act will limit ground rent in most new long residential leases to one peppercorn per annum, effectively abolishing rental income returns available to landlords and developers.
Whilst there have been concerns about escalating ground rent provisions in existing leases, the Act will not have retrospective effect. Should an existing lease be surrendered and re-granted however, it may very well be caught by the provisions of the Act.
The Act will apply to ‘regulated leases’, which means long leases granted for a term of more than 21 years of a single dwelling in exchange for a premium, on or after 30 June 2022.
There are exceptions and the Act will not apply if a lease is granted after 30 June 2022 pursuant to a prior agreement. Thus, if contracts have exchanged before 30 June 2022 and the grant of a new lease takes place after 30 June 2022, the lease will not fall within the scope of the Act and a ground rent above a peppercorn may be charged. If exchange and completion take place after 30 June 2022 however, the Act applies in full and only a peppercorn ground rent is chargeable.
Business leases, statutory lease extensions of houses and flats, community housing leases, and home finance plan leases are excluded.
Where a voluntary lease extension of a house or a flat is granted after 30 June 2022, the ground rent specified in the existing lease will continue to be payable for the remainder of the original term of the lease and a peppercorn rent will then be payable for the extended term.
There are serious sanctions for non-compliance with the Act and Landlords may face fines ranging from £500 to £30,000 per lease.
The abolishment of ground rents in new leases is part of a package of lease reforms which the Government intends to implement, including substantial changes to the calculation of premiums and procedures for lease extensions and collective enfranchisement.