What is the Leasehold Reform (Ground Rent) Act 2022?

 The Leasehold Reform (Ground Rent) Act 2022 received Royal Assent on 8 February 2022, meaning it is now an Act of Parliament and will come into force on 30 June 2022.  

What is the Leasehold Reform (Ground Rent Act 2022)? 

The Act will put an end to the ground rent payments on new residential long leases for properties in England and Wales in order to make owning a leasehold property fairer, more transparent and more affordable for the leaseholder. 

Under Section 1 of the Act, regulated leases are those: – 

  1. long leases (i.e. over 21 years) of a single dwelling, 
  2. granted for a premium, 
  3. granted on or after the relevant commencement day, otherwise than in pursuance of a contract made before that day, and 
  4. when it is granted, it is not an excepted lease.

Under Section 2, certain leases are exempted, which at this time include: – 

  1. Business leases granted for business purposes where the nature of that business purpose is such, that use of part of the premises as a dwelling significantly contributes to that and on or before the time the lease is granted, the parties give each other notice that they intend the lease to be used for business purposes.   
  2. Statutory lease extensions of a house or flat. 
  3. Community housing leases (as defined at Section 2(7) of the LRGRA 2022). 
  4. Home finance plan leases (as defined at Section 2(9) of the LRGRA 2022).

Legally, ground rent in most new leases is not allowed to be set more than “one peppercorn per year”. This “peppercorn rent” means that no money can be legally charged or paid as ground rent on leases regulated by this Act. Further, the Act prohibits freeholders from charging administration fees for collecting a peppercorn rent. 

There are sanctions for non-compliance when ground rent has been wrongfully received and not returned within 28 days. Fines range between £500 – £30,000 per qualifying lease. Additionally, a leaseholder under a qualifying lease has the right to apply to the First-Tier Tribunal (Property Chamber) in England for a declaration that a term reserving prohibited ground rent is replaced with peppercorn rent. 

What are the exceptions to the Leasehold Reform Act 2022?

The Act is not retrospective, and leases granted prior to 30 June 2022 can still demand ground rent uncapped. Again, a lease entered after the Act comes into force, pursuant to an option or right of first refusal pre-dating the Act, will still be subject to its provisions. 

The Act does not come into force in relation to retirement home leases before 1 April 2022. 

Further advice 

When managing your leasehold stock in future, it would be wise to not inadvertently vary a lease to the extent it amounts to a surrender and regrant. A regrant after the Act comes into force means its provisions would apply and ground rent would be capped at a peppercorn rent. 

Law is correct as at 7th June 2022 

Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational purposes. You are respectfully reminded that it is not intended to be a substitute for specific legal advice and should not be relied upon as legal advice. No liability is accepted for any error or omission contained herein. 

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