The Leasehold Reform (Ground Rent) Act 2022 effectively abolishes ground rents under new long residential leases (i.e., leases with a term of more than 21 years) that are granted for a premium.
The Act received Royal Assent on 8 February 2022 but has not fully come into force yet. It forms a vital part of the Government's agenda for leasehold reform is described as part of the most significant changes to property law in a generation.
Once fully in force, the Act will limit the ground rent that can be charged on most new residential long leases of flats and houses, and the extended term of any lease extension, to a peppercorn per year.
The implementation date for the main provisions is set for 30 June 2022, except in respect of retirement properties where the new legislation will not apply before 1 April 2023. Some leases will be excluded from the Act, including business leases, statutory lease extensions under Leasehold Reform Act 1967, the Leasehold Reform, Housing and Urban Development Act 1993 and shared ownership leases.
Once in force, the Act will not have a retrospective effect. However, any existing leases which are varied (effectively surrendered and renewed) after the Act has come into force will be included, meaning the ground rent will be removed from the date of the variation of the lease. Ground rent cannot be increased above the amount charged under the existing lease for any lease extension being negotiated informally (i.e., without service a Notice). Whilst it claims to address issues that leaseholders have been facing with aggressive multiplying ground rents, which has caused widespread problems for those leaseholders seeking to sell, re-mortgage, buy their freehold or extend their lease, without retrospective effect, landlords under existing long leases will still be able to charge ground rent and administrative fees at potentially onerous rates, meaning that the majority of tenants will remain in the same position even once the legislation is fully in force. However, there is parliamentary pressure for the Government to introduce a similar bill to cover existing leases and the ground rent and rent review provisions.
In addition, the Government is also looking to reduce premiums and costs payable by leaseholders in extending their leases. Possible ways of doing this include prescribed rates for other elements of the premium calculation and the abolition of marriage value, which is an additional element of value payable for the freehold or an extended lease where the unexpired term of the lease is 80 years or less. While some of the proposals were announced in early 2021, there have been no detailed plans of action or timescales for implementation.
If you would like any further advice or assistance regarding residential ground rents, lease extensions, or freehold disposals, please do not hesitate to contact us.