So, we were all wondering when the 2022 Act banning ground rent for new leases would come into force and now we have the answer.

This is a pretty big piece of Leasehold Reform News and I am delighted to be able to announce it here.

Yesterday I received a letter from The Minister, Lord Greehlalgh confirming that the Leasehold Reform Ground Rent Act 2022 will come into force on 30th June 2022.

The 2022 Act prevents any new lease granted after 30th June 2022 containing a ground rent. The only acceptable rent after this date will be a peppercorn – I.e. zero, nothing, nil.

The only exception to this will be that if a lease is renewed on a voluntary (agreed) basis that the existing ground rent may continue during what would have been the term of the old lease. In the ‘new’ or extended part of the lease term the ground rent must be zero.

Leases granted after 30th June 2022 that breach these provisions will expose the person granting them to penalties and fines of between £500 and £30,000 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 form charging an administration fee to collect a ‘peppercorn’ ground rent.

There are some very limited exceptions which relate to community housing, business leases, certain types of financial products and shared ownership. In addition, commencement is delayed until a date which will not be before 1st April 2023 for the retirement sector.

The writing is therefore very much on the wall for ground rent.

Comment

This will delight leasehold campaigners who have been looking for the abolition of ground rent (and leasehold more genearlly for residential flats) and paves the way for a world in which new leases are at zero rent. That surely also forms part of the commonhold agenda as with freehold flats under commonhold there will be no more ground rent.

I expect that there will be lots of landlords caught out by these changes who do not react quickly enough and there may well be fines for those that get it wrong.

It will be intersesting to see what this does to the value of portfolios with a ground rent as given that the scope for introducing these in the future will diminish, this could see an indirect increase in their value .

We will also have to wait and see what else DLUHC may have planned in terms of the wider scope for reform.

Mark Chick

31.3.2022