The Leasehold Reform (Ground Rent) Act 2022 came into effect on 30 June 2022, except for retirement properties where it will not come into force before 1 April 2023.
This new legislation effectively puts an end to ground rents for new, qualifying long residential leasehold properties in England and Wales.
The following are key points to note from these changes:
- If any ground rent is demanded as part of a regulated new residential long lease, it cannot be for more than one literal peppercorn per year. In effect, most future residential leaseholders will not be faced with financial demands for ground rent.
- Landlords will be banned from charging administration fees for collecting a peppercorn rent, closing a possible loophole where a landlord could try to make a monetary charge via another route.
- Landlords who require a payment of ground rent in contravention of the Act will face penalties of between £500 and £30,000 enforced by way of a civil penalty regime.
- For existing leaseholders entering into voluntary lease extensions (as opposed to statutory) after commencement, the extended portion of their lease will be reduced to a peppercorn.
There will only be limited exceptions from this Act, including:
- Applicable community-led housing
- Certain financial products
- Business leases where defined by the Act as leases of commercial premises which include a dwelling, use of which substantially contributes to the business purposes
With these changes coming into effect shortly, we would recommend that landlords review their existing projects and for these and any upcoming extensions ensure that they are taking appropriate legal advice on the terms being extended to leaseholders.
The impact on the removal of the ground rent income stream for the business should also be considered and action taken where necessary to manage this.
For more information or for a particular enquiry, please contact Michael Breame via our online enquiry form .
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