Bye, bye ground rents?

The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022. It puts to an end ground rents (other than for one peppercorn) formerly payable on most new long (21 years or more) residential leasehold properties in England and Wales. The governmental Department for Levelling Up, Housing and Communities (‘DLUHC’) has stated “The Act will make home ownership fairer and more transparent for millions of future leaseholders. The reputation of the leasehold system has been damaged by unfair practices that have seen some leaseholders contractually obligated to pay onerous and escalating ground rents, with no clear service in return.” The Act will bring such practices to an end.

Historically, a ‘peppercorn’ ground rent often equated to a rent of nominal or low value. From 30 June, it means what it says – a peppercorn is just that. Further, the Act prevents a landlord from charging a fee for collecting the peppercorn. The DLUHC has stated: “There is no obligation on a landlord to charge or collect a peppercorn rent and we do not envisage that landlords will request their leaseholders pay a peppercorn as a rent in practice.” Whilst it is agreed the peppercorn has no financial value, we at Hatherleigh Training fear that non-payment might give landlords a stick with which to beat its defaulting tenants. Time will tell but a tenant should at least proffer any peppercorn due.

The DLUHC has stated that generally, a lease will be regulated by the Act where:

  • It is granted on or after 30 June 2022
  • It is a long lease (exceeding 21 years) for a single dwelling
  • It was granted for a premium (usually known as the “purchase price”), this also includes where a lease has been varied by a ‘deemed surrender and regrant’ and no premium was required
  • It is not an excepted lease.

The Act, therefore, will not apply to, for instance a business lease or (even though the lease is dated on or after 30 June 2022) to a lease were a legally binding contract was entered into before 30 June.

The Act does not apply to leases entered into before 30 June 2022 and will not affect the payment of ground rents already agreed upon. There is, however, a transitional period which applies to regulated leases of retirement homes. The Act will not come into force for these leases earlier than 1 April 2023.

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