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What is the leasehold reform (ground rent) act?

On 8 February 2022, The Leasehold Reform Act 2022 received its Royal Assent. The legislation’s main aim is to restrict ground rents for most new long residential leasehold properties to a peppercorn meaning, no financial value. The Act applies to England and Wales, and the Act was brought into force on 30 June 2022.

The Leasehold Reform Act 2022 means that landlords of new leases must not require a leaseholder to make a payment of prohibited rent. Historically, a ‘peppercorn’ ground rent often meant a rent that was of nominal or low value. This Act restricts ground rents on new leases to a peppercorn rent only, effectively restricting these ground rents to no financial value.

The purpose of this limit is to prevent leaseholders from getting trapped by rising rents, creating fairer relationships between freeholders and tenants, and providing greater transparency regarding ownership for leaseholders. This Act also stops administration charges surrounding rents and acts as an anti-avoidance measure

How will this affect leaseholders and developers?

The question raised by the commencement of this Act is, how will this affect leaseholders and buyers?

If you bought a new (regulated) lease after 30 June 2022 you will not be faced with financial demands for ground rent. There are some exceptions to this, which are community-led housing, applicable business leases and a grant of a lease before 30 June 2022.

As a freeholder granting a new lease or as a property developer who wants to sell a residential home as an individual leasehold, you should ensure you remain up to date on any new legislation to ensure you are not breaching the rules of any new policy. 

You should understand your obligations and review any ground rent clauses in your leases before entering into it with a new buyer. 

The solicitors at Eric Robinson will provide you with the necessary advice when it does come to reviewing, renewing or creating new residential long leases, helping you to ensure you are in compliance with the Act.

The Leasehold Reform Act’s purpose is to ensure the leasehold system achieves the following for leaseholders:

  • operate fairly for leaseholders
  • not to cause delays in the home buying and selling process

They wanted to make it easier and cheaper for leaseholders to:

  • extend their lease
  • buy their freehold
  • take over management of their block

If a landlord charges ground rent contravening the Act (and the monies have not been returned by them within 28 days of receipt), they could be liable to receive a penalty between £500 and £30,000.

This Act sets out the Government’s efforts to modernise the leasehold system and make it fairer and more transparent for all.

How are lease extensions affected by the Leasehold Reform Act 2022?

Voluntary or statutory lease extensions for housing and flats are not included in this area. 

With regard to voluntary lease extensions, the ground rent that can continue to be charged should not exceed the amount specified in the lease for the remaining term before reverting to a peppercorn rent for the extended term.

Finally, with retirement homes, the legislation will only apply to new leases of these properties granted after 1 April 2023.

Lease extensions are a complex area of law and it is essential that you get in touch with a specialist property lawyer who understands the various processes involved in the lease extension experience.

How can Eric Robinson Solicitors Help? 

The area covering the Leasehold Reform Act 2022 is a complex area of law. 

Eric Robinson Solicitors have expert Conveyancing Solicitors, who can help you through this process and navigate the Act, whether you are a landlord or leaseholder, for either residential and commercial properties

We have offices located in Southampton (Hedge End & Bitterne), Winchester, Lymington, London (Richmond) and Chandlers Ford

Contact Eric Robinson Solicitors today for expert family law advice on 02380 218 000, or simply fill out our contact us form.