An outline of the Leasehold Reform (Ground Rent) Act 2022

Over recent years there has been negative press surrounding the payment and review of ground rents charged on residential leasehold properties. This has led to reform in this area. Associate solicitor Danielle Leeming from our commercial property team outlines how the Leasehold Reform (Ground Rent) Act 2022 is the first step towards resolving these widely publicised issues.   

The Leasehold Reform (Ground Rent) Act 2022 (the Act) prohibits a landlord from charging anything other than a ground rent of one peppercorn a year (effectively a zero rent) on most new residential long leases. The Act came into force for most leases on June 30, 2022, with the provisions of the act relating to retirement homes coming into force on April 1, 2023.

The Act only applies to ‘qualifying leases’ which are defined in the Act as being:

• A lease which is granted for more than 21 years of a property which is intended to be a single residential dwelling.
• The lease is granted for a premium (for a sum of money other than a rent).
• The lease is granted on or after June 30, 2022, or if the rent charged under the lease is more than the peppercorn per year, the contract agreeing the sale of the property would have to have exchanged prior to June 30, 2022.
• The lease does not fall within the definition of an ‘excepted lease’.

As with most legislation, there are often exceptions to the rule. There are certain leases which do not fall within the definition of a ‘qualifying lease’.

These include:

• Business leases – where the property is intended to be used for a business or the use of part of the property as a residential house contributes significantly to the business use. An example of this would be the owner of a shop who lives in the residential flat above the shop.
• Statutory Lease extensions – Where a lease of a house is extended under Part 1 of the Leasehold Reform Act 1967, or where the lease of a flat is extended under Chapter 2 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993, the new Act does not apply.
• Community housing leases – this exception applies where the landlord is a community land trust (generally a housing association) and a lease is granted to the tenant of a property in a building controlled or managed by a co-operative society (generally a housing association). The rent payable under these leases is generally required to pay for shared facilities or shared services.
• Home Finance Plans – an example of this exception is a property which is purchased via the ‘rent to buy’ arrangement. It also includes arrangements such as Sharia (Islamic) mortgages.

Any landlord found to have granted a ‘qualifying lease’ on or after June 30, 2022, could be liable for penalty fines ranging between £500 and £30,000 which are subject to the discretion of the local authority issuing the penalty. The local authority can also order the landlord to repay the prohibited rents plus interest or the tenant can apply for an order against the landlord for repayment of the prohibited rent.

If you are looking to buy a property which is subject to a lease or are a developer wanting to sell houses or flats, it is vital that you get the right advice at the outset of the transaction. Harrison Drury has a wealth of experience with residential and commercial property and development work.  For more information, please contact our team on 01772 258321.