The new Leasehold Reform (ground rent) Act 2022 came into force on 30th June 2022 and stops freeholders of leasehold properties from charging ground rents for new long residential leasehold properties. There could be fines of up to £30,000 where ground rent is charged and it should not be.
What are the main points of the leasehold legislation?
New long residential leasehold properties that are governed by the Act cannot be legally charged ground rent for the property. Administrative fees for collecting ground rent will also be stopped.
Leaseholders are those who own interest in leasehold property. These properties usually have a freeholder or a “landlord” which is the person/company with superior interest in the property.
Usually, with leasehold properties, annual ground rent is charged to the leaseholder, however, this has led to people paying increasing rents each year with no clear idea of why and no service in return.
Under the new Act, leaseholders that enter into a voluntary lease extension will be reduced to a “peppercorn”, which means that no charge can be requested.
What is ground rent?
“Ground rent” is a legal term that basically means a payment of rent. In long leases of 21 years or more, it is common for someone who owns a leasehold property to pay this rent each year. But the problem is that the landlord (the overall owner of the leasehold property) does not need to give a clear service in return for the rent.
What type of leases does the Act cover?
“Regulated leases” is what the new Act is referring to. These are leases of more than 21 years for a single house or flat granted after 30th June 2022. Therefore, those who buy a new leasehold property (covered by the Act) will not be required to pay ground rent.
Under the Leasehold Reform (ground rent) Act 2022 there are the following exceptions:
- Statutory lease extensions for houses and flats
- Applicable community-led housing
- Certain financial products
- Business leases which are defined by the Act as leases of commercial premises
What should I do if I have been charged ground rent on a leasehold property?
If you have been charged ground rent on a new leasehold property where the lease was granted after 30th June 2022, this may be prohibited rent. In this case, you should ask the landlord/freeholders to return the amount that you paid within 28 days. If they fail to do so, they may be liable for fines.
If you would like to seek further legal advice regarding prohibited ground rent, please do not hesitate to contact us.