A Guide to the Leasehold Reform (Ground Rent) Act 2022
Sinead Campbell from London Flats Insurance looks at the Leasehold Reform (Ground Rent) Act 2022.
There was much discussion around the Leasehold Reform (Ground Rent) Act 2022 last year, but now that the act applies to all leases (including retirement properties who were given until 1st April 23 to comply), we thought a round up guide may be useful to our readers.
Here we’ll explain what came into force last year, how it affects existing and new leaseholders, and what to expect in terms of further legislation updates in the months to come.
Why Has the Act Come About?
It has been known for some time that leasehold ownership came with a set of sometimes tricky financial obligations, including Ground Rent- a property industry term given to a rent that is usually paid annually by owners of residential long leases to their landlord.
“Long leases (those exceeding 21 years) frequently require a leaseholder to pay an annual ground rent, often hundreds of pounds a year, for which the landlord does not have to provide a clear service in return.” Gov.uk
Given Royal Assent on the 8th February 2022, the Act aims to “make home ownership fairer and more transparent…tackling significant ambiguity and unfairness for future leaseholders.”
What Has Come into Force So Far?
From the 30th June 2022, Ground Rent obligations were made illegal for all new leases granted in England and Wales, reducing ground rent charges to no more than an annual ‘peppercorn’ payment (a peppercorn is a metaphor for a very small cash payment made to satisfy the needs of a contract- usually this will be £1 or less). It’s expected that most landlords will opt to charge nothing, rather than going to the trouble of charging a tiny amount.
Ground rent was also abolished for lease extensions, so from the date the existing term expires and the new term takes effect, the ground rent will become zero. Since the 1st April 2023, the rules also now apply to retirement properties.
The Act also bans landlords from charging administration fees for collecting a peppercorn rent, preventing unscrupulous Landlords from charging £1 for the Ground rent but for an extortionate ‘admin fee’.
Enforcement of the Rules
Enforcement of the new regulations will fall to Trading Standards. District Councils are also able to enforce the rules (in England only) but they’re not required to do so.
As a leaseholder, if you find that your lease requests a Ground Rent fee, the first thing to do is to check that your lease is covered by the Act. If it’s a residential lease granted on or after 30th June 22, the likelihood is very high. The four main exceptions to the Act are statutory lease extensions and business, community housing and home finance plan leases.
If you’ve confirmed that the lease is covered, Government guidance suggests an informal chat with your landlord in the first instance. They may simply amend the lease to reduce the Ground Rent requirement to zero to correct their error. If you’ve already paid the Ground Rent laid out in your lease, your landlord has 28 days to return the funds to you.
If your talks with your landlord are fruitless, you can then report the breach to the Citizens Advice Consumer Helpline who will pass your report to Trading Standards. Trading Standards officers will then use this information to decide what action is required.
Ultimately, if a landlord charges ground rent in contravention of the Act, they are liable to receive a financial penalty between £500 to £30,000.
What May Come Next?
The Leasehold Reform (Ground Rent) Act 2022 is a positive move in the right direction, but it only helps new leaseholders. Millions of existing leaseholders are likely to be left wondering when they may be helped with the cost and red tape involved in extending their leases.
HomeOwners Alliance summarise the concerns of many existing leaseholders: “We are at risk of a two-tier leasehold market appearing: newly built leasehold properties with no ground rent will be more desirable to buyers than the 4.6 million existing leasehold properties.”
Recent announcements from Housing Secretary Michael Gove have suggested that he plans to abolish the leasehold system: “I don’t believe leasehold is fair in any way. It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it.”
He suggested that a bill to reform the leasehold sector will be included in the next session of Parliament in the autumn of 2023. HomeOwners Alliance Chief Executive Paula Higgins commented: “We are extremely pleased that the government has committed to a leasehold bill in the coming session of Parliament. But the devil is in the detail: we need to wait and see the scope of the draft bill and whether it is indeed included in the next King’s speech which has been delayed until Autumn 2023.”
Any abolishment of the leasehold system will not be simple or speedy. With freeholders, property management companies and developers deeply invested in keeping the system going, resistance is expected.
For more information, please contact a member of the London Flats Insurance team on 020 7993 3034.