The Leasehold Reform (Ground Rent) Act 2022 came into force this summer on June 30, aimed at ‘making home ownership fairer and more transparent for millions of future leaseholders’. It tackles what the government calls ‘onerous and escalating ground rents’, offering ‘no clear service in return’. Essentially, it means most new leaseholders won’t face financial demands for ground rent.
What is ground rent?
As you no doubt already know, in England and Wales you buy a home on a leasehold or freehold basis. The latter grants the purchaser total ownership both of the property and the ground it stands on. Under a leasehold sale, you don’t own the land on which your property sits, so only own the place for as long as outlined in the lease. The arrangement is commonplace with flats, which share communal areas requiring regular maintenance. The freeholder carries this out in return for a service charge. (It’s a system dating back to the times of William the Conqueror!)
Meanwhile, ground rent is a contractual rental payment made for occupying part of any area of land. It’s not connected to the service charge or maintenance services, and can be fixed or escalating. Sometimes, this rent is described as a ‘peppercorn’ – i.e. of such nominal value that no one will ever actually collect it. Where ground rent is charged with a monetary value, you are legally obliged to pay it.
What does the Act say?
Here is a summary of some of the key points of the Act:
- The Act states that, as of June 30, any ground rent demanded under a new long residential lease must not exceed ‘one peppercorn’ a year. This means that it effectively has no financial value, and so removes any obligation on leaseholders to make these payments to the landlord.
- Any landlord found in contravention of this Act could find themselves facing hefty financial penalties of between £500 and up to £30,000.
- When it comes to the regulated leases of retirement homes, a transition period applies. This means that the Act will not come into force to apply to these situations any earlier than April next year.
- If you’re involved in a long residential lease (i.e. typically one lasting longer than 21 years) granted prior to June 30 this year, then unfortunately you are not affected by this Act, and therefore leaseholders remain liable for ground rent.
- The Act does not cover statutory lease extensions, and so these remain unchanged. However, bear in mind that statutory lease extensions for flats must already be granted with a peppercorn ground rent.
- Equally, the Act bans landlords from charging admin fees for collecting a peppercorn rent.
- Enforcement will be the responsibility of the local weights and measures authority (Trading Standards teams) in England and Wales. District councils can also enforce in England, but don’t have to.
If you’re a leaseholder, check first of all whether this Act covers your lease.
Talk to us
At Oakfield, we’ve been in block management for more than 25 years. We work with investment landlords, residents’ management companies and Right to Manage companies in looking after more than 900 leasehold properties across East Sussex, comprising anything from two to 70 units.
Whether you’re a leaseholder or landlord, talk to us today about how the new Act could affect you – and how we may be able to help.