Ground rents becoming a thing of the past

Posted Friday 22nd April 2022

Further to the Leasehold Reform (Ground) Rents Act 2022 receiving Royal Assent on 8 February 2022, it has been confirmed that ground rents in most new and extended residential leases will be limited to a peppercorn – a legal term meaning ‘zero’, literally one peppercorn – from 30 June 2022.

ground rents

In a letter from the Department for Levelling Up, Housing and Communities to the Association of Leasehold Enfranchisement Practitioners, the Minister, Lord Greenhalgh, confirmed that regulations will soon be issued setting out the rules, but the headline is that almost all new residential leases granted after 30 June 2022 will be limited to a peppercorn ground rent.

Leases extended on an informal basis (i.e. outside of the Leasehold Reform, Housing and Urban Development Act 1993) after 30 June 2022 will be allowed to retain the existing rent until the end of the original term, but will have to retain a peppercorn rent for the extended period.

There will be some exceptions, such as shared ownership and business leases where the residential element is ancillary to the non-residential element, and these will be set out in the regulations. The Minister confirmed that the provisions for retirement home leases will not come into force before 1 April 2023 as ground rent comprises a major revenue stream in that sector and the industry will need time to prepare.

It is anticipated that the regulations will have exceptions for leases granted pursuant to an agreement dated before 30 June 2022, so there will still be a limited number of new leases granted after that date with a non-peppercorn ground rent. However, we would anticipate more and more potential buyers insisting on a peppercorn ground rent before 30 June 2022 as in theory, they could choose to wait for the regulations to come into force.

It is believed that the government’s ultimate aim is to do away with leasehold ownership for residential property and move towards commonhold ownership. Eliminating ground rents is the first stage and one would expect more and more leases to be sold with a term of 999-years with the freehold of the building transferred to leaseholders after all the units have been sold as there will no longer be any residual income from them.

Breaches of the Act will attract fines of between £500 and £30,000, to be imposed by trading standards. Where leaseholders have been charged a ground rent unlawfully, they will be able to recover the amounts via the Property Tribunal.

We will update our guidance when the regulations are published and as further leasehold reform legislation is passed by the government.

This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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