What does leasehold mean?
Purchasing a leasehold property means you are purchasing a lease from the freeholder for the right to live in the property for a set number of years. The freeholder (or landlord) will continue to own the structure of the building and the ground it sits on for which they will charge an annual ground rent. A long residential lease is considered to be more than 21 years though typically residential leases are granted for 99 years or 125 years.
The issues faced with Ground Rents in modern leases
Historically, ground rents were set at zero or a nominal level. More recently it has become common practice to sell properties on long leases with higher ground rents from the start and regular review periods increasing the rent throughout the term of the lease. These onerous terms have resulted in leaseholders facing unsustainable rents which affect their ability to mortgage or sell their properties.
The Reform
The Leasehold Reform (Ground Rent) Act 2022 is the first stage of the Government’s plan for leasehold reform and will be brought into force within six months. The Act received Royal Assent on the 8 February 2022 and is a positive step in seeking to rectify these issues aiming to ensure a fairer, more affordable and transparent homeownership for thousands of future leaseholders.
The Government calls the reform “the most significant changes to property law in a generation” putting an end to ground rents for new, long residential leasehold properties in England and Wales.
Once in force, the Act will restrict annual ground rent on new long leases of houses and flats to the value of one peppercorn per year, effectively restricting ground rents to zero financial value. The Act also forbids freeholders from charging administration fees for collecting a peppercorn rent.
What is peppercorn rent?
The term ‘Peppercorn rent’ is reference to the traditional practice of providing a peppercorn as a token payment to form a binding contract. In practice, it is a very low or nominal rent which has essentially zero value.
What leases are affected by the Reform?
The Act applies to residential long leases granted for a premium and entered into from and including the day the law comes into force.
Retirement Homes
Retirement home leases are leases which can only be occupied by people aged 55 or over. As ground rents are generally higher in these estates to help meet the cost of providing communal areas and facilities, the provisions of the Act will apply no earlier than the 1st April 2023 in order to allow more time for the transition.
What leases are excluded?
The Act will only apply to new leases and will not deal retrospectively with existing leases. Business leases, statutory lease extensions, community housing leases and home finance plan leases are also excluded from the Reform.
Lease Extensions
Statutory lease extensions granted under the Leasehold Reform, Housing and Urban Development Act 1993 are not affected by the Act as new Ground Rents under these leases are already a peppercorn.
Where a leaseholder negotiates a voluntary lease extension with a landlord, ground rent can be charged during the existing lease term. Once the extended lease terms starts however, the ground rent must revert to a peppercorn.
What happens if landlords don’t comply?
The Act gives power to the authorities to impose fines ranging from £500-£30,000, for each qualifying lease, on landlords who demand ground rent in contravention of the Act and do not return payment within 28 days.
How can Blaser Mills Law help?
The Blaser Mills Law residential property team is on hand to help with any questions you may have surrounding both the Leasehold Reform (Ground Rent) Act 2022 as well as leasehold properties in general. The team is currently offering a free initial consultation for anyone seeking advice on the reform in particular. To book your initial consultation please contact Samantha Bellia on 01494 770983 or email sxb@blasermills.co.uk.