The Leasehold Reform Ground Rent Act 2022
Many commentators have been following the Government’s commitment to ban ground rent for new leases and we now have on the statute books (as of 8th February 2022) the Leasehold Reform (Ground Rent) Act 2022.
The act will effectively ban ground rent for all new leases and will restrict the rents that can be charged on leases granted on renewal of existing leases.
The Act is not in force yet, but when it does come into force it will lead to a major shake up in the residential leasehold sector.
The DLUHC announcement that accompanied the Act receiving Royal Assent envisages that it will come into force ‘within six months’ – and if that is right then this means by 8th August 2022.
Mark Chick commented as follows: “Ground rent has been a feature of the legal landscape for centuries and this Act is going to wipe that away for residential leases – much to the delight of many leasehold campaigners.
The Act is very broadly drafted and will catch all attempts to impose a ground rent in a new lease after it comes into force.
The exceptions are going to be:
Renewals of existing leases where the rent will have to remain the same until the old lease would have expired, after which it must be a peppercorn (zero); and
Leases granted under contracts exchanged before the Act comes into force.
There are also some adjustments for the retirement sector, and the ‘rent to buy’ model as well as shared ownership leases. Commercial (business) leases are also exempt.
The campaign to remove ground rent in residential leases gathered momentum after the ills of the so-called “Leasehold Scandal“ in which developers sold certain properties, (particularly houses in the North West of England) on leases with accelerating ground rent provisions. These rents made the properties hard or impossible to mortgage and led to an understandable backlash.
Some would say that a modest ground rent does not cause a problem. However, the potential for abuse has led to the what we have here, in the banning of ground rent in brand new leases.
Clearly, there is political will behind this move, which can probably be seen as part of an overall plan to pave the way for commonhold.
Developers are going to have to get used to the fact that new build flats are not going to produce a ground rent – a valuable income stream – and one that is often used to part finance development and or to provide stable income for the pensions market.
For more information on this please see the detail that appears in Mark’s article on this subject: