The Leasehold Reform Act – changing the way ground rent is charged on new, long leasehold residential properties

Ground rent and residential leaseholds properties have been a topic of conversation in the property sector for some time. The Leasehold Reform (Ground Rent) Act 2022 (LRGRA 2022) is coming into force on the 30 June 2022 (changes to retirement home leases will come into effect from 1 of April 2023) and is set to change the way ground rent is charged on new, long leasehold residential houses or flats in England and Wales, subject to a few exceptions. It aims to make leasehold ownership fairer and more affordable.

One of the first big changes is that most new leases will have their ground rent limited to a ‘peppercorn rent’. A ‘peppercorn’ is used to illustrate that something is paid in rent, but in practice means that nothing will be paid to the landlord as a peppercorn has essentially zero financial value, although it could still be requested. Landlords will have to pay fines of up to £30,000 if it is found that ground rent in being charged in breach of the act.

Another change the act will bring into force is a ban on freeholders being able to charge administrative fees for collecting a peppercorn rent. This will stop situations where the rent is technically zero, but the freeholder could charge high administrative fees for requesting ground rent to supplement the monies they will be losing from a lack of ground rent.

The changes will only effect new leases and will not apply retrospectively. There are only some properties exempt from the act, these include:

• shared ownership leases – only the share owned by the tenant will be at a peppercorn rent, the landlord’s share will be able to charge ground rent
• home finance plan leases
• community led housing
• business leases – this would be a lease of a commercial premises which includes a residential dwelling
• statutory lease extensions for houses and flats – as these provisions remain unchanged, they will be exempt from the Act.

If you are in the process of buying a new leasehold property, you should check if your rent is already a ‘peppercorn’ or consider waiting until 30 June to take advantage of the upcoming changes.

If you are a landlord and want more information on how these changes impact you, please contact Ruth Boulton, Kat McDonagh or Rosie Penny in our property team.