On 30 June 2022 Leasehold Reform (Ground Rent) Act 2022 will come into force, potentially freeing homebuyers from expensive ground rent bills. It’s a significant victory for leaseholders, who could save a lot of money that would previously have been charged by a property’s freeholders.
What is the objective of the Act?
Any new residential long lease granted after 30 June 2022 must only contain a provision for a peppercorn ground rent. This is a rent so nominal it isn’t demanded, reducing the ground rent down to nil. This also ensures Landlords cannot charge an administrative fee to collect ground rent.
The Act will only apply to residential leases which are for a term of more than 21 years and will not apply to business leases, community housing leases or home finance leases. Also, retirement properties will not fall under this new regime until at least April 2023.
However the result of the Act should help make owning a leasehold property fairer and more affordable for many people.
Why was this change necessary?
Expensive ground rent fees have caused problems for purchasers and also lenders, in particular where the ground rent has doubled every 5 or 10 years, far exceeding what the retail index price would be.
This has also caused a further issue. If the annual rent payable is more than £1000 in Greater London or £250 for a property outside Greater London, the Housing Act 1988 applies and the long lease could be deemed an assured tenancy. Under the Housing Act 1988 the remedies to obtain possession/forfeit the lease are severe. The Tenant only needs to be in arrears for 2 months and the Landlord could serve notice under section 8 of this act.
What to check before buying?
If you are purchasing a new lease, the new provision showing the ground rent as a peppercorn rent should be incorporated within the lease. Your conveyancing lawyer will check and advise you of this.
If you are purchasing an existing lease, the ground rent provisions in the lease will remain valid even after 30 June 2022. You will only be able to review this when you extend the lease in the future.
If you are purchasing with the benefit of a lease extension, it is important you consider what is being offered. At the moment the rules for a voluntary lease extension allow for the Landlord to increase the ground rent and these provisions would remain valid for the rest of the new term irrespective of the new legislation. It is therefore worth negotiating the terms or waiting until after 30 June 2022.
Will anything change for people who currently own a leasehold property?
The Act only applies to new residential long leases after 30 June 2022 so this Act will not change the terms of an existing lease. However, you will have an opportunity to review this when you extend the lease in the future
In any case, whether you are looking to sell or purchase a leasehold property, it’s worth getting good legal advice because the landscape is changing dramatically. Please contact our conveyancing team at your nearest office for a quote.
What is the objective of the Act?
Any new residential long lease granted after 30 June 2022 must only contain a provision for a peppercorn ground rent. This is a rent so nominal it isn’t demanded, reducing the ground rent down to nil. This also ensures Landlords cannot charge an administrative fee to collect ground rent.
The Act will only apply to residential leases which are for a term of more than 21 years and will not apply to business leases, community housing leases or home finance leases. Also, retirement properties will not fall under this new regime until at least April 2023.
However the result of the Act should help make owning a leasehold property fairer and more affordable for many people.
Why was this change necessary?
Expensive ground rent fees have caused problems for purchasers and also lenders, in particular where the ground rent has doubled every 5 or 10 years, far exceeding what the retail index price would be.
This has also caused a further issue. If the annual rent payable is more than £1000 in Greater London or £250 for a property outside Greater London, the Housing Act 1988 applies and the long lease could be deemed an assured tenancy. Under the Housing Act 1988 the remedies to obtain possession/forfeit the lease are severe. The Tenant only needs to be in arrears for 2 months and the Landlord could serve notice under section 8 of this act.
What to check before buying?
If you are purchasing a new lease, the new provision showing the ground rent as a peppercorn rent should be incorporated within the lease. Your conveyancing lawyer will check and advise you of this.
If you are purchasing an existing lease, the ground rent provisions in the lease will remain valid even after 30 June 2022. You will only be able to review this when you extend the lease in the future.
If you are purchasing with the benefit of a lease extension, it is important you consider what is being offered. At the moment the rules for a voluntary lease extension allow for the Landlord to increase the ground rent and these provisions would remain valid for the rest of the new term irrespective of the new legislation. It is therefore worth negotiating the terms or waiting until after 30 June 2022.
Will anything change for people who currently own a leasehold property?
The Act only applies to new residential long leases after 30 June 2022 so this Act will not change the terms of an existing lease. However, you will have an opportunity to review this when you extend the lease in the future
In any case, whether you are looking to sell or purchase a leasehold property, it’s worth getting good legal advice because the landscape is changing dramatically. Please contact our conveyancing team at your nearest office for a quote.