The Leasehold Reform (Ground Rent) Act 2022 – A pivotal change in home ownership?

Posted: 23 August 2022

What is the objective?

The 30^th June 2022 saw the introduction of the Leasehold Reform (Ground Rent) Act 2022.  Effectively, ‘banning’ ground rent on new residential leases, in England and Wales.  In an attempt, to free leaseholders of the annual costs of ground rent, whilst the cost of living continues to rise exponentially.  The Government in this 2022 Act have limited ground rent to a ‘peppercorn rent’.

What is a ‘peppercorn’ rent?

Historically, a ‘peppercorn’ ground rent often meant a rent that was of nominal or low value.

In practice, the new legislation restricts ground rents to zero financial value on new, qualifying residential long-leasehold properties (lease terms exceeding 21 years), of which a landlord has no obligation to levy.

What could this mean?

It is hoped that this move will be seen to create a more level playing field for homebuyers. Leasehold Minister, Lord Stephen Greenhalgh said:

“This is an important milestone in our work to fix the leasehold system and to level up home ownership. Abolishing these unreasonable costs will make the dream of home ownership a more affordable reality for the next generation of home buyers.”

Does this apply to existing leases?

It is important to know that the law will not apply retrospectively and will only apply to leases granted after 30^th June 2022. The one (temporary) exception to this is where you are buying a retirement property. Here, the ban on ground rent won’t take effect until at least April 2023. The stance on existing leaseholders’ rights remains for them to extend their leases following the statutory procedure.  Which will automatically reduce their existing ground rent to a peppercorn.

The Act is just the first step in a series of Government reforms intended to deal with perceived unfair practices in the leasehold market.

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