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A Guide to The Leasehold Reform (Ground Rent) Act 2022


Major changes to residential lease ground rents have taken place as the Leasehold Reform (Ground Rent) Act 2022, having passed through the commons without any opposition, received Royal Assent on 8 February 2022.

The Act means that ground rents on new houses and flats under new “regulated” leases (residential leases granted for a term of at least 21 years in return for a premium) in England and Wales will be charged at “one peppercorn” per year or, in other words, owners who purchase leases rather than freeholds will pay effectively nothing in respect of ground rent.

The provisions of the 2022 Act are expected to commence within six months of Royal Assent.

Although these proposed changes have made the news recently, the idea that the government should legislate against unfair and inhibitive ground rents on leasehold properties is certainly not a new one and is in fact an example of legislation ‘catching up’ with what is already happening in the housing market.

Why are these reforms to leasehold ground rents being made?

To understand the driving forces behind the Leasehold Reform (Ground Rent) Act 2022, it is important to consider the recent history and trends in leasehold properties.

For a long time, offering leasehold houses for sale was not particularly common practice, with the majority of new houses being sold freehold. However, as leaseholds began to gain in popularity in the 1980s, developers realised that by having a lease, they could also reserve a ground rent.

These ground rents (packaged with the freehold reservations of leasehold flats) became valuable and were allowed to increase in time periods that as a minimum had to align with the Council of Mortgage Lenders (now the UK Finance Mortgage Lenders) requirements, essentially creating an investment model which, at the time, became more attractive than investing through a bank or building society.

In addition, with the payment of ground rents representing an attractive revenue stream for developers and investors. Leaseholders failure to pay could result in their property being ultimately repossessed by the freeholder.

It is important to state that, although some developers certainly benefitted from rising ground rents, no laws were ever broken. The leasehold model was a perfectly legal way to offer properties.

As it went through Parliament, the draft legislation were tightened to reduce the risk of unscrupulous landlords exploiting grey areas in the legislation to try to find innovative ways to extract money from their tenants. Sums genuinely characterised as rates, council tax, service charges and insurance will be unaffected – even if they are reserved as a rent in a lease.

Which types of leaseholds are affected?

The Act will apply to long leases (generally over a term of 21 years or more) of dwellings granted on or after the Act becomes law. The legislation will not have retrospective effect.

There are some exceptions and some transitional provisions included within the Act which will need to be considered.

For renewal of leases under which a ground rent was paid, the ability of the landlord to continue charging a ground rent will depend on the nature of the renewal. Special provision is made for shared ownership lease, and regulation of ground rents in retirement accommodation will not come into effect before 2023, to allow for providers to make adjustments without undermining the supply of retirement property to meet the increasing demand.

Will consumers be compensated for payment of disproportionate ground rents?

The Act does not make provisions for a compensation scheme from developers who might be considered to have contributed to or benefitted from ground rent increases. As the Act is aimed at new leases, no provisions have yet been made for older leases to be varied in order to align them with the updated legislation.

How will these changes be enforced?

The 2022 Act applies to England and Wales and a duty is placed on local weights and measures authorities (trading standards authorities) in England and Wales to enforce the Act.

Any breach of the Act can be enforced with financial penalties of up to £30,000 for regular offenders, as well as a requirement for landlords to repay unlawfully collected ground rents.

Extending existing problematic leases

Existing legislation does provide for an extension to the term of existing leases, which, in the process, does allow for the elimination of ground rent.

Where the renewal is a statutory renewal of a lease of a house under the Leasehold Reform Act 1967 or a statutory renewal of a lease of a flat under the Leasehold Reform, Housing and Urban Development Act 1993, that renewal lease will technically be an “excepted lease” though statutory lease renewals typically result in ground rent being reduced to a peppercorn in any event, but in this scenario, the leaseholder is legally bound to compensate the freeholder for the subsequent loss of ground rent.

The reality is that, although there are mechanisms in place to provide some remedies for the current issues with leaseholds, these are quite cumbersome and will not represent an attractive option for consumers.

However, where a landlord and tenant agree a voluntary lease renewal, the landlord will not be permitted to demand a ground rent, expect where there is a period of overlap between the term of the old lease and the term of the new lease.

What does this mean for developers?

Although the Act certainly a good thing and is a necessary evolution of leasehold legislation, it will not impact on developers in any meaningful way. Most developers will have historically operated using conventional ground rents which may not have increased over time and therefore will not have been a problem. Also many major institutional landlords and developers have already adjusted their lease terms to take account of the anticipated ground rent restriction, which has been expected for some time. Mortgagees have also changed their standing instructions as well.

The real issue with the state of leasehold was determining what action should or could be taken in the intervening period before the legislation. This has been remedied, with leaseholds being treated differently by developers and investors and as stated above, the legislation is in many ways the government making official what is already becoming an industry standard.

It will be intriguing to see whether the prohibition has any effect on the residential property market, with higher prices being paid for zero ground rent leases.

What does the Leasehold Reform (Ground Rent) Act 2022 mean for commercial landlords?

For conventional commercial landlords of commercial property, the Act does not change anything, but landlord investors who have historically purchased ground rents will, alongside their lenders, want to review their portfolios to gain an idea of what might be the best course of action.

An evident issue for government in passing the Act is the impact it could have on investors, whose property portfolios and the associated ground rent will likely be servicing mortgages tied to those investments relying upon the collection of often portfolio ground rents.

This is probably the reason that the government was reluctant to retrospectively legislate in respect of existing leases.


If you are a developer or commercial landlord seeking further advice on these changes or on a specific legal matter, please contact Chris Dolan by emailing [email protected] or by completing the form below. 

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