Reform of Ground Rents passed into Legislation

The Leasehold Reform Act 2022 received Royal Assent on 8th February 2022. The goal of this legislation is to restrict ground rents on newly created long leases of houses and flats to an annual rent of one peppercorn being intended to represent no financial value. The Act applies to England and Wales, and duty is placed on local weights and measures trading standards authorities in England and Wales to enforce it. The provisions of the act are set to commence within six months of Royal Assent.

What is peppercorn rent?

The Act lowers ground rent to a ‘peppercorn rent’. A peppercorn rent has no financial value and refers to the traditional practice of providing a peppercorn as a form of remuneration to bind a contract.

The reason behind the limit is to stop leaseholders from becoming trapped by escalating rents and to create fairer, more transparent ownership for leaseholders. The Act also prohibits administration charges for peppercorn rents as an anti-avoidance measure.

How could this affect housing developers?

Housing Minister Eddie Hughs has said that the Leasehold Reform Act will set ground rent to zero on new leases from this summer and could save future leaseholders hundreds a year.

Solicitors and other advisers will no doubt want to advise both their developer and buyer clients of the pending changes. Some developers have been anticipating the bill and have effectively abolished ground rents.

How will this affect leaseholders and buyers?

The government has said that tightly defined exceptions under this act will include applicable community-led housing and certain business leases. Statutory lease extensions for housing and flats are exempt from this. The ground rent that can continue to be charged on a voluntary lease extension is capped and cannot exceed the amount specified in the lease for the remaining term before reverting to a peppercorn rent for the extended term. The act will come into force no later than the 1^st April 2023 for retirement homes.  This Act has been welcomed by the Law Society.

1. Stephanie Boyce, President of the Law Society of England and Wales has said that while the act will address ground rets for flats in new developments, The Law Society will continue to make the case for potential buyers in existing developments to be given the relevant information about leasehold terms from the outset so they can make more of an informed decision as to whether to view a property. Read more about how the Ground Rent Reform could affect Housing Developers by clicking here.

Rose & Rose Solicitors Leasehold Solicitors

There is a right to require the freeholder to sell you the freehold of your leasehold house under the Leasehold Reform Act 1967. Using the procedure in this Act (subject to your qualification under the Act) we can help you to buy the freehold from the current freeholder. The premium you will have to pay the freeholder is calculated using a prescribed formula within the Act. The calculations are carried out and negotiated by valuers experts in this area. If the premium cannot be agreed by negotiation, either party may apply to the property tribunal to decide a fair price that the freeholder will be ordered to accept.

This is a very complex area of the law and requires expert advice. Please contact one of our specialist solicitors below – Ryan Senior & Nick Roots – to discuss the best way forward for you and we will provide you with further and specific advice tailored to your circumstances.