Ground Rent and the Leasehold Reform (Ground Rent) Act 2022

The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022. This new act prohibits landlords under residential long leases from charging ground rent on most new leases in England and Wales. Ground rent is a regular payment made from a leaseholder to their landlord. This Act aims to put an end to increasing annual costs for owners of leasehold property and to make homeownership cheaper, fairer and more secure.

What are the new rules on ground rent?

The new rules mean that landlords can no longer charge ground rent on most new long residential leases in England and Wales. A long residential lease is one that is for a term of 21 years or more. Ground rent in most new leases cannot legally be for anything more than “one peppercorn per year”. A “peppercorn rent” means that no money can be legally charged or paid as ground rent on leases regulated by the Act. The Act also prohibits landlords from charging administration fees for collecting a peppercorn rent.

Are there any exceptions to the new rules?

There are some exceptions to the rules. The Act does not apply to non-regulated leases, leases for community-led housing, certain financial products, business leases, and statutory lease extensions. It does not apply to a shared ownership lease where rent is payable on the landlord's retained share, however, the peppercorn rent requirement applies on the leaseholder's share. The Act does not apply where the buyers and sellers have entered into a legally binding contract for the grant of a lease before 30 June 2022 (more often referred to as exchange of contracts).

The new ground rent rules are effective depending on the exchange date rather than on the completion date of the lease. Practically, this could mean some new leases are still including ground rents in years to come in the case of new build properties with completion dates which are not anticipated for some time.

The new rules do not currently apply to retirement homes, however, this is due to be implemented no earlier than 1 April 2023.

Which transactions may be caught by the Act?

If a lease is surrendered and a new lease is re-granted, then the new lease will be caught by the Act and as a result, no ground rent will be payable by the leaseholder:

  • For existing leaseholders entering into voluntary lease extensions after commencement of the Act, the Land Registry requires a Lease Extension to be effected by way of a Surrender and Re-grant thereby meaning the remainder of the extended term will be subject to a ground rent of a peppercorn;
  • Similarly, leases changing the extent of the demise will also be caught by the Surrender and Re-Grant requirement, thereby requiring a reduction in the ground rent to a peppercorn.  

Who will benefit from the Act?

The Act will benefit anyone exchanging contracts on the purchase of a leasehold property after 30 June 2022 where they are entering into a long residential lease and none of the above exceptions apply. Generally, a leaseholder will benefit from the Act where the lease is a long lease for a single dwelling, it has been granted a premium (usually, the purchase price) and it is not an excepted lease, meaning that none of the exceptions apply.

What does this mean for current owners of a leasehold property?

The Act will not change the terms of existing leases for current leaseholders. However, this is just the first step of many of the government's plans to help make leasehold ownership fairer and we hope to see more changes in the future.