The Future of Ground Rents

The Future of Ground Rents

Article from Property Elite, first published June 2022, essential reading for APC candidates and all professionals involved in residential leasehold property and looking at the new legislation contained in the Leasehold Reform (Ground Rent) Act 2022

What does the new legislation say?

The legislation received Royal Assent in February 2022 and will effectively ban ground rents under new leases. The government has committed to bringing the Act in to force within 6 months, i.e., by 8 August 2022 (except for leases of Retirement Homes which will not apply until 1 April 2023).
 

What does the Act apply to?

The Act will apply to new leases:

  • Of a single dwelling

  • Granted for a term of over 21 years, disregarding any early break options. Shorter leases may also be covered if they can be renewed

  • That are granted for a premium

  • That are not granted pursuant to a contract entered into before the ban comes in to force

What is a dwelling defined as?

A “Dwelling” is defined as “a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it”.
 

Are there any exceptions?

The exceptions which fall outside the ban are:

  • Business leases – if a lease is not of a single dwelling, it is not regulated by the Act.

  • Statutory lease extensions of houses or flats.

  • Community housing leases

  • Home finance plan leases

What other provisions are contained within the Act?

Leases which fall within the Act must not contain a ground rent of more than a peppercorn. Anti-avoidance measures include that no administration charge may be payable.
 

Where a lease is granted as a result of a purchase of a “Shared Ownership Dwelling”, the ground rent ban applies to rent in respect of the tenant’s share in the property only. A financial rent may be charged in respect of the landlord’s share, ie, the share that the tenant does not own.

Does the Act affect existing leases?

The Act does not affect existing leases, however, the Government’s leasehold reform programme could lead to future restrictions. Where leases are renewed, rents can only continue up to the expiry of the term of the original lease.

What are the penalties for non-compliance?

Failure to comply with the legislation by landlords will incur fines of £500 - £30,000 per lease. Leaseholders will have the ability to apply to the Tribunal for a declaration that a prohibited ground rent will be replaced by a peppercorn rent.

 

About the author - Jen Lemen BSc (Hons) FRICS 

Jen has extensive experience in providing training services to students, RICS AssocRICS, APC and FRICS candidates and corporate clients, together with academic experience as a Senior Lecturer at the University of the West of England, Lecture at the University of Portsmouth and Associate Tutor at the University College of Estate Management. Her RICS assessment experience includes sitting on final APC interview panels, APC appeal panels and being a lead APC preliminary review assessor.

She has also written published articles in Property Week, ACES Terrier, RICS Modus and the RICS Property Journal. She also writes a regular APC column in Estates Gazette Brick & Mortar podcast series with Sarah Jackman and is a contributing author to the Health & Safety section on RICS iSurv.

For more details on the Built Intelligence APC Structured training sessions available click here

 

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