The Leasehold Reform (Ground Rent) Act comes into force

The Leasehold Reform (Ground Rent) Bill was introduced to Parliament on 12 May 2021, with the intention of reforming the current legislation to make it easier and less costly for residential leaseholders to extend the term of their lease and/or to acquire the freehold. On 24th January 2022 the bill passed its third reading in the House of Commons and has now become law. The Leasehold Reform (Ground Rent) Act 2022 (“the Act”) will come into force at the end of this month on 30 June 2022, with the exception of retirement properties where the new legislation will not apply before 1 April 2023.

The Act applies to “regulated leases” which are long leases (of more than 21 years) of a single house or a flat, granted for a premium after the 30 June 2022) This also includes variations to a lease where the lease is effectively surrendered and re-granted. There are some types of leases that are excluded from the Act, and these include business leases, statutory lease extensions, community housing leases and home finance leases.

Fines for continuing to impose ground rent

Landlords who demand a ground rent in contravention of the Act face fines and leaseholders will be able to apply to the First-Tier Property Chamber for a declaration that a prohibited ground rent is replaced with a peppercorn rent. Further, the Act places a duty on trading standards authorities in England and Wales to take enforcement action where a prohibited rent has been charged.  Where a breach occurs, the enforcement authority has power to impose a financial penalty subject to a minimum of £500 and a maximum of £30,000.  The enforcement authority also has power to order the repayment of the prohibited rent together with interest to the leaseholder.

The new law means that, going forward, new homes that are sold as leasehold will only be able to charge a nominal fee. However, while the new law will stop ground rents on new leaseholds, it does not extend to existing property owners. However, the government has made it clear that the abolition of future ground rents is a starting point. Future legislation may address existing leases where leaseholders find themselves trapped by rapidly escalating ground rents.