An end to ground rents 2022

The abolition of ground rents in residential leases in England and Wales is to come into force from 30 June 2022, under the new Leasehold Reform (Ground Rent) Act 2022.

What is the aim of the new act? 

The government is introducing this act in order to tackle what has been deemed to be perceived as onerous ground rent payments for tenants of long leases.

The Act affects Regulated Leases in England and Wales. A ‘regulated lease’ is a residential lease, granted for a term of at least 21 years for a premium (i.e. monetary consideration other than rent). 

Therefore, all regulated leases granted after the 30 June 2022 will not be able to  charge a ground rent of more than one peppercorn per year. A peppercorn means nothing or nil. 

What are the exceptions? 

Ground rents chargeable under existing leases are not affected. 

There are some very limited exceptions which relate to business leases, shared ownership, community housing and certain types of financial products. In addition to these exceptions, commencement is delayed until a date of at least 1 April 2023 for the retirement sector.

Any leases granted after the act has come into force but pursuant to a contract entered into prior to 30 June 2022 (i.e. an agreement for lease) will also be exempt. Existing residential leases where there is a deemed surrender and re-grant due to a material variation will, however, be caught by the act.

What are the penalties for breaching the act? 

Any leases granted after 30 June 2022 that breach these provisions, will expose the person granting them to penalties and fines of between £500 and £30,000 and will be enforced by a civil penalty regime.

Any rent paid in error after commencement, must be returned with interest and there are anti-avoidance provisions in the act preventing freeholders from charging an administration fee to collect a ‘peppercorn’ ground rent.

If you require any further details or would like some advice regarding the information in this blog, Jasmin Patel would be happy to hear from you. Please contact her on 01245 453861 or [email protected].