Leasehold Reform (Ground Rent) Act 2022
The Leasehold Reform (Ground Rent) Act 2022 (“LRGRA”) has been introduced by the Government following mounting pressure to deal with onerous ground rent provisions in long residential leases.
The LRGRA limits the ground rent on most new long residential leases to one peppercorn per year (if demanded). This means there will be no financial value in ground rents.
The restrictions apply to single dwellings being purchased for a premium. The Landlord will be prohibited from demanding a rent that exceeds a peppercorn. In addition to this, the landlord is prohibited from charging administrative fees in relation to collecting the peppercorn rent.
On 30 June 2022 the LRGRA will come into force for most new long residential leases, subject to some exceptions.
The LRGRA will not affect retirement properties until 1 April 2023
What does this mean for leases granted before 30 June 2022?
The restrictions introduced by the LRGRA do not apply to leases that have already been granted. The Government has plans to implement further legislation that will cover existing long residential leases.
Why does the new legislation not affect existing Leases?
The Government feels that if it were to introduce these restrictions on existing leases then it may have a negative effect on Landlords.
What is a long lease?
A long lease is a lease with a term of more than 21 years.
What leases are excepted from the ground rent restrictions?
There are several leases that are excepted from the ground rent restrictions that have been introduced by the LRGRA.
These are:
- Business Leases
- Statutory Lease extensions of both houses and flats
- Community Housing Leases
- Home finance plan leases
What about voluntary lease extensions, are they exempt?
No. If you were to enter a voluntary lease extension after the commencement of the LRGRA, the extended lease will be reduced to a peppercorn rent.
What penalties can Landlords expect if they are in breach of the LRGRA?
Landlords who breach the LRGRA can face fines ranging from £500-£30,000 per lease. In addition to this the Landlord is likely to receive demands to repay the rents (that exceed one peppercorn).
Why has this legislation been introduced?
In the upcoming years there will be further amendments to current leasehold law. It is the Government’s intention to make leasehold properties more affordable for leaseholders. The overall intention of the Government is to set all future ground rents to zero.
I am a property developer; how will this affect me?
Firstly, it is crucial that you obtain legal advice when creating new residential long leases, and we at Leonard Gray would be more than happy to assist you.
When creating a residential long lease, you must ensure that the ground rent is no more than a peppercorn and no administrative costs are charged in respect of collection of the peppercorn rent.
I currently own a long leasehold property; how can I benefit from this?
Unfortunately, the new legislation does not benefit you at present. However, this is only the start of the Government’s leasehold reform programme. The Government is due to address existing leases and ground rent provisions in the relatively near future.