The Leasehold Reform (Ground Rent) Act 2022 comes into force on 30 June 2022 (except for retirement properties where it will not come into force before 1 April 2023).
In one of the most significant changes to property law in recent years, the act will put an end to ground rents for new and qualifying long residential leasehold properties in England and Wales. This comes after well-publicised problems with some new build freeholders charging extortionate and escalating ground rent on leasehold properties.
After the 30 June 2022, freeholders will not be able to charge anything more than ‘one peppercorn per year’ for ground rent on leases taken out after this date. The inclusion of the ‘peppercorn rent’ protects the freeholder by preventing the leaseholder from claiming the property as their own.
To stop freeholders trying to get round the new regulations, the Act also bans freeholders from charging an administration fee for collecting a peppercorn rent.
Any freeholder contravening the act can be fined up to £30,0000.
The Act does however contain some exceptions, these are:
- applicable community-led housing
- certain financial products
- business leases which are defined by the Act as leases of commercial premises which include a dwelling, use of which substantially contributes to the business purposes
Statutory lease extensions for both houses and flats remain unchanged and are therefore exempt from the new regulations.
If an existing leaseholder enters into a voluntary lease extension after the 30 June 2022, only the extended portion of their lease will be reduced to a peppercorn rent.
While these reforms are welcomed it does not help the thousands of existing leasehold owners who continue to face escalating rents that make their properties difficult to sell.