Ground rent reform on the way for leaseholders

Karen Pratt, in Blandy & Blandy’s residential property team, discusses the Leasehold Reform (Ground Rent) Act 2022.

As a conveyancer, you can sometimes get a feeling of dread these days when dealing with the sale or purchase of leasehold residential properties.

Leases come in all shapes and sizes and you have to be on the ball to make sure you know every inch before reporting to your clients or replying to enquiries. When there is ground rent involved we have to keep in mind not only our obligations to you, our clients, but more often than not the obligations to a mortgage lender.

A lot has changed in the past few years and in 2022 “The Leasehold Reform (Ground Rent) Act 2022” becomes the first stage of the Government’s aim to make leasehold property ownership equitable and more affordable. It comes into force on June 30, 2022.

So what are the goals of the Act, and how will it affect buyers looking to purchase a leasehold property? Moreover, how will it affect current leaseholders?

When the Act comes into force, a new ‘regulated long lease’ (a long lease is defined by having a term of 21 years or more) in England and Wales will not be able to charge a ground rent of more than one peppercorn per year – that means £0 ground rent.

The Act also prohibits leases from administration charges for the peppercorn rents. These measures have been introduced by the Government to overcome what has been seen as the inequity of onerous ground rent payments for tenants of long leases. The Act should make owning a leasehold residential property fairer, more transparent and more affordable for the leaseholder.

It should be noted however that some types of leases that are excluded from the Act, and these include business leases, statutory lease extensions, community housing leases and home finance leases.

Historically, expensive ground rent fees have often caused issues for homeowners of leasehold properties, the calculations for the ground rent can be a difficult equations or worse the lease may state that the ground rent doubles every so many years.

The Leasehold Reform (Ground Rent) Act will put an end to this for people entering into new leases. This is indeed good news for new homeowners but also for the conveyancers who represent them, as it will enable a smoother transaction with far less enquiries.

Unfortunately, this Act will not apply retrospectively, so it will not affect leases that are already in existence. Remember- you do have rights and if an existing lease is surrendered and re-granted, it may be caught by the Act – and the new regulations surrounding ground rent might apply.

This is also a continuing area of reform and the author believes there will be more to come by the way of lease amendments.
For further information or legal advice, please visit www.blandy.co.uk.

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