Tackling Onerous Ground Rents

Leasehold Reform (Ground Rent) Act 2022 – Tackling onerous ground rents

The Leasehold Reform (Ground Rent) Act 2022 is the first in a series of proposed reforms relating to residential leasehold properties and follows increasing pressure to deal with onerous ground rents. The purpose of the Act is to make owning a leasehold residential property fairer, more transparent and more affordable for the leaseholder. The Act will be brought into force at different stages with the main substantive provisions, including the ground rent restrictions, coming into force on the 30th June 2022.

The Act limits the ground rent chargeable on most new long residential leases to one peppercorn per year, effectively restricting ground rents to zero financial value. The ground rent restrictions will apply to new, residential long leases that are entered into when the law has come into force on 30th June 2022, and onwards. Long leases are leases which are for a term of more than 21 years, and do not include short-term tenancies. There are 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. The landlord under a regulated lease must not ask the tenant for payment of prohibited rent or fail to refund such payment within 28 days of receipt. With regards to what is classed as prohibited rent, this means any rent exceeding the amount permitted under the Act, which is an annual rent of one peppercorn. It is worth noting that rent includes anything “in the nature of a rent, whatever it is called”, but a sum payable in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters does not constitute rent for these purposes.

However, despite concerns about ground rent provisions in existing leases, the restrictions introduced by the Act do not generally apply to leases granted before its substantive provisions come into force and the Act will not apply retrospectively. If an existing lease is surrendered and re-granted, it may be caught and the new regulations could apply.

It is worth noting that this is a continuing area of reform, and the government is due to address the issue of paying ground rent under existing leases in the future.

For further information on residential leaseholds, contact Frank Smith & Co Solicitors on 01242 801748 or info@franksmithandco.com

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