Goodbye to Ground Rents?

By Lucy Riley

Legal Director

The Leasehold Reform (Ground Rent) Act 2022, which comes into force on 30 June 2022, is intended to put an end to ground rents in most long leases of residential property for good.

As part of a raft of reforms of the law relating to leasehold homes which the Government intends to bring forward, the 2022 Act bans the charging of anything other than peppercorn ground rents in long leases of residential property which are sold for a premium. The Act also prohibits attempts to circumvent the Act’s provisions by the charging of administration fees for collecting peppercorn rents.

Contravention of the Act’s provisions will be enforced via the civil penalty regime which can include fines of up to £3,000. Leaseholders will also be entitled to apply to the tribunal for a declaration that a prohibited ground rent referred to in their lease is replaced with a peppercorn rent.

The Act does not, however, apply to business leases, leases of retirement homes (until April 2023), community housing leases or home finance plan leases. Leases granted under the enfranchisement legislation will also not be affected.

Where a long lease is extended voluntarily, ground rents can be charged at the levels reserved by the original lease but only until the expiry of the original lease term. Following the expiry of the original lease term, the ground rent must be a peppercorn.

In the case of shared ownership leases, the landlord can continue to charge ground rents on its share of the equity in the property.

The Act is not retrospective in effect and will still apply to leases granted pursuant to an option entered into prior to the date when the Act comes into effect. It will not however, affect leases granted pursuant to contracts made before the Act comes into effect.

So, it’s goodbye soon, to most if not all, new ground rents!

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