Leasehold Reform (Ground Rent) Act 2022 – Update on “ground zero” for ground rents

The Government has now confirmed its plan to commence the provisions of the long awaited Leasehold Reform (Ground Rent) Bill 2022 on 30 June 2022, except in respect of retirement properties where the new legislation will not apply before 1 April 2023.

The legislation is intended to lead to more transparent home ownership for future generations of leaseholders.  It will restrict ground rents on new long leases of flats and houses (with some exceptions) to a token rent of one peppercorn (essentially nil) per year. Rents in existing leases will however remain unchanged.

The Act is a welcome first positive step in leasehold reform, with the intention being to make leasehold ownership fairer and more affordable for leaseholders.

Several issues and concerns were however raised during the Bill’s passage through the House of Lords, who were in particular concerned about the following:

• the legislation will only apply to new leases and will not assist existing leaseholders faced with high and escalating ground rents;
• unscrupulous landlords may pressurise leaseholders to agree voluntary lease extensions in order to continue existing ground rent arrangements;
• there is no firm timetable for the more substantive second part of the leasehold reform legislation to make acquiring the freehold or an extended lease easier and cheaper;

New long residential leases

The Act will apply to a long lease of a single dwelling, and so a house or a flat, granted for a premium on or after the Act comes into force, unless granted pursuant to a contract made before the Act comes into force.

A long leases is a lease granted for more than 21 years.

Existing leaseholders

The legislation will not apply retrospectively, with the effect of creating a two-tier market.  One for existing leases which could become more difficult to sell and the other for new leases which will be much more attractive in the market.

Exceptions

There will only be selected exceptions, which are tightly defined and include applicable community-lead housing, certain financial products and business leases.

Business leases are defined by the legislation as leases of commercial premises which include a dwelling, the use of which substantially contributes to the business purposes, for example a caretaker’s flat.

Further details will follow in due course regarding regulations to specify the form and content of written notices that are required to be exchanged by the landlord and tenant to qualify for the business lease exception.

Wider reform

The government has committed to future legislation in a wide programme of reform to assist existing leaseholders and to make it easier and cheaper to acquire the freehold or an extended lease.

The reforms include the following:

• The right for house and flat owners to extend their leases to 990 years at zero ground rent and reduced costs;
• Abolition of marriage value, which is an additional element of value payable for the freehold or an extended lease where the unexpired term of the lease is 80 years or less;
• Prescribed rates for other elements of the premium calculation;
• A Commonhold Council, being a partnership of leasehold groups, industry and government, that will prepare home owners and the market for the widespread take up of commonhold.

The detail and timing of the wider reforms remain uncertain.

Read our previous blog on this subject, ‘“Ground zero” for ground rents’ here.

For further information regarding this topic, please contact Katherine Simpson or any member of the Property team.

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