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Leasehold Reform (Ground Rent) Act 2022 – Does it affect your lease?

Published: 31 May 2022

The Leasehold Reform (Ground Rent) Act 2022 ("the Act") is due to come into force on 30 June 2022.

The Act seeks to resolve problems caused to leaseholders who find themselves liable to pay onerous amounts of ground rent, with such ground rent substantially increasing over time.

The intention behind the Act therefore is to assist leaseholders, in the hope that owning leasehold properties shall become more appealing, and more affordable.

How will the Act assist?

When in force, the Act shall effectively ban a landlord from recovering ground rent on any new lease so long as the following applies:

  • It is a long residential lease, being one with a term of more than 21 years;
  • The lease is in respect of a single dwelling (flat or house);
  • The lease has been granted, or entered into, for a premium;
  • The lease has been granted, or entered into, from and including 30 June 2022.

This would therefore include a deemed surrender and re-grant of an existing lease, should there be any variation, or an extension, to the demise itself.

Should the lease be caught by the Act, the ground rent recoverable by a landlord shall be limited to a peppercorn rent only (zero rent).

To what leases will the Act not apply?

The Act will not apply to business leases, community housing leases and home finance leases.

Does the Act apply retrospectively?

No.  A landlord shall still be permitted to recover ground rent in accordance with the terms of a lease, so long as the lease was entered into before 30 June 2022.

Does the Act affect lease extensions?

When extending a lease in respect of a flat using the formal statutory route, the ground rent is already reduced to a peppercorn rent, in accordance with the Leasehold Reform, Housing and Urban Development Act 1993.

If extending a lease in respect of a house using the formal statutory route however, the Leasehold Reform Act 1967 currently allows landlords to continue to charge ground rent, and this is presently unaffected by the Act.

If leaseholders choose to extend the lease of their flat or house via an informal, non-statutory route, they may still be required to make payment of ground rent as a result of those negotiations with the landlord.  This will, however, only apply up to the expiry date within the existing lease.

Once the expiry date within the existing lease has passed, the extended term beyond 30 June 2022 will be caught by the Act, and the ground rent will be restricted to a peppercorn rent accordingly.

What happens if a landlord contravenes the terms of the Act?

If a landlord recovers ground rent on a long residential lease granted after 30 June 2022, and fails to pay it back to the leaseholder within 28 days, they face being held liable to pay a financial penalty of between £500 to £30,000, per single lease.

Once the Act is in force, landlords should ensure they are aware of the provisions of the Act, to avoid unknowingly committing a breach by seeking payment of prohibited rent.

Leaseholders should also be vigilant as to what sums are being sought from them after 30 June 2022.

If you would like to discuss any concerns you have regarding rent you propose to seek from a leaseholder, or regarding any rent being demanded from you by the landlord, please do not hesitate to contact a member of our Litigation Team or Property Team on 01332 600005.

The information contained within this article is provided for information purposes only and does not constitute legal advice.  Specialist legal advice should be taken in relation to specific circumstances.