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Hot Topic Highlight – The Future of Ground Rents

Updated: Oct 29, 2023

Building a Better You

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What is today's blog about?

This week we take a look at the new legislation contained in the Leasehold Reform (Ground Rent) Act 2022.

This is essential reading for all RICS APC and AssocRICS candidates with any involvement in residential leasehold property.

What does the new legislation say?

The legislation received Royal Assent in February 2022 and will effectively ban ground rents under new leases. The government has committed to bringing the Act in to force within 6 months, i.e., by 8 August 2022 (except for leases of Retirement Homes which will not apply until 1 April 2023).

What does the Act apply to?

The Act will apply to new leases:

  • Of a single dwelling

  • Granted for a term of over 21 years, disregarding any early break options. Shorter leases may also be covered if they can be renewed

  • That are granted for a premium

  • That are not granted pursuant to a contract entered into before the ban comes in to force

What is a dwelling defined as?

A “Dwelling” is defined as “a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it”.

Are there any exceptions?

The exceptions which fall outside the ban are:

  • Business leases – if a lease is not of a single dwelling, it is not regulated by the Act.

  • Statutory lease extensions of houses or flats.

  • Community housing leases

  • Home finance plan leases

What other provisions are contained within the Act?

Leases which fall within the Act must not contain a ground rent of more than a peppercorn. Anti-avoidance measures include that no administration charge may be payable.

Where a lease is granted as a result of a purchase of a “Shared Ownership Dwelling”, the ground rent ban applies to rent in respect of the tenant’s share in the property only. A financial rent may be charged in respect of the landlord’s share, ie, the share that the tenant does not own.

Does the Act affect existing leases?

The Act does not affect existing leases, however, the Government’s leasehold reform programme could lead to future restrictions. Where leases are renewed, rents can only continue up to the expiry of the term of the original lease.

What are the penalties for non-compliance?

Failure to comply with the legislation by landlords will incur fines of £500 - £30,000 per lease. Leaseholders will have the ability to apply to the Tribunal for a declaration that a prohibited ground rent will be replaced by a peppercorn rent.

How can we help?

Stay tuned for our next blog post to help build a better you.

N.b. Nothing in this article constitutes legal, professional or financial advice.


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