On 21st December 2017, the Government announced their plans to tackle the growing problem of newly built houses sold as a leasehold rather than a freehold and limiting ground rents on new lease agreements. Leasehold reform was one of the considerations of the Law Commission’s Programme of Law Reform with the aim of finding ways of making the process of buying a freehold or extending a lease “easier, faster and cheaper.”
Leasehold Reform Act 2022
The Leasehold Reform Act received Royal Assent on 8th February 2022. The 2022 Act applies to England and Wales, and duty is placed on local weights and measures authorities (trading standards authorities) in England and Wales to enforce the Act. The provisions of the Act are set to commence within six months of the Royal Assent.
The Act seeks to end ground rent for new qualifying long residential leasehold properties in England and Wales, and this is considered a hugely significant change to property law in a generation. The Leasehold Reform Act lowers ground rent to what is called a ‘peppercorn rent’. This means the rent has no financial value and dates back to the traditional practice of offering a peppercorn as a form of remuneration, which would bind a contract.
The existence of this limit is to stop leaseholders from becoming trapped by rising rents and to provide fairer and more transparent ownership for leaseholders. It also prohibits administration charges for peppercorn rents for anti-avoidance.
What are the sanctions for non-compliance
The landlord could be charged a fee ranging from £500 to £30,000 per qualifying lease if the ground rent is demanded in contravention of the Act. A leaseholder under a qualifying lease has the right to make an application to the First-Tier Tribunal in England for a declaration that a term reserving prohibited ground rent is replaced with peppercorn rent.
How could the Leasehold Reform affect leaseholders and buyers?
Exceptions under this Act will consist of applicable community-led housing and some business leases, with statutory lease extensions for housing and flats being exempt. The ground rent that will remain charged on a voluntary lease extension will be capped and will not exceed the amount specified in the lease for the remainder of the term before reverting back to a peppercorn rent for the extended term. The Act will come into force by 1st April 2023 for retirement homes and has been welcomed by the Law Society.
How could this affect housing developers?
Conveyancing Solicitors and other experts aim to advise both developer and buyer clients of the upcoming changes. There are some developers who have anticipated this bill and have essentially abolished ground rents.
Find out more about how the Leasehold Reform Act 2022 affects leaseholders, buyers and developers by viewing it in its entirety here.
Larcomes Solicitors Leasehold Specialists
Whilst we now may have a clearer idea of the Governments intentions, we are holding out for more details of the framework and how this will have an effect on property owners going forward.
Our specialist and dedicated team of landlord and tenant solicitors can assist you through the ever-changing maze of landlord and tenant legislation across all sectors of the commercial and residential real estate market. We work hard to ensure that our advice is practical, jargon-free and cost-effective at all times.
Give Larcomes’ specialist residential conveyancing team a call on 023 9244 8100 for our Portsmouth office or 023 9224 6666 for our Waterlooville office and let them take the worry out of your hands. Find out more by visiting our residential conveyancing page.