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The move to outlaw leasehold ground rent is finally approaching conclusion. In May 2021, we reported that the Queen’s Speech had confirmed that the government’s legislative agenda would include a bill to “prevent the practice of onerous and escalating ground rents from affecting future leaseholders”.
On 8th February 2022, the Leasehold Reform (Ground Rent) Act 2022 received Royal assent. The Department for Levelling Up, Housing and Communities have announced that the ground rent restrictions contained in the Act will come into force for most new residential leases on 30th June 2022. It will ensure that for the first time, leaseholders of new, long residential leases cannot be charged a financial ground rent for no tangible service.
Ground rent scandal
Ground rent is an annual payment made by the leaseholder for the privilege of living on the freeholder’s land. In recent years, it has become increasingly controversial, with many leaseholders finding themselves stuck in unsaleable properties. The problem has been caused by developers including doubling clauses in leases which in many cases results in the ground rent doubling every 10 or 15 years.
In September 2021, we reported that Countryside Properties had become the latest major housebuilder to bow to pressure and commit to amending existing lease terms to maintain ground rents at the same level they were at the date of purchase. Their commitment came in the wake of an investigation by the Competition and Markets Authority into Countryside and three other developers –Taylor Wimpey, Barratt Developments and Persimmon Homes.
Peppercorn ground rent
From 30th June 2022, anyone buying a house or flat on a long lease will not need to pay ground rent. If ground rent is demanded as a term of a new lease, it can only be charged at “one peppercorn” – which is essentially zero. However, the new rules will not apply to retirement housing until at least 1st April 2023. There are also exceptions for some community-led housing schemes and business leases.
If you are an existing leaseholder and you voluntarily extend your lease, your ground rent will be set to zero upon completion of the extension.
If you are buying a leasehold property or extending your lease between now and 30th June, you should ensure that the upcoming change is reflected in the lease.
Sanctions for demanding ground rent
If a freeholder demands ground rent in breach of the Act, they face a fine of between £500 and £30,000. In addition, leaseholders have the right to apply to the First-Tier Tribunal to recover prohibited ground rents already paid.