In this article, Leasehold Property Paralegal Hannah Faith looks at the upcoming Leasehold Reform (Ground Rent) Act, discussing when its coming into force and how it will affect lease extensions.
When is the Leasehold Reform (Ground Rent) Act 2022 coming into force?
In May last year the government published the Leasehold Reform (Ground Rent) Bill.
This has now been approved by Parliament, given Royal Assent by the Queen and will come into effect on 30th June 2022 as the Leasehold Reform (Ground Rent) Act 2022.
What will the Leasehold Reform (Ground Rent) Act do?
The Act will prevent landlords from charging a leaseholder a ‘Prohibited Rent’ (essentially, any rent at all) under any new lease granted from 30th June 2022.
Ultimately, this means that landlords will only be entitled to receive a peppercorn ground rent (i.e. zero) in any new leases going forward.
Although there are some exceptions where it won’t apply, the Act will largely relate to long leases of flats granted for more than 21 years.
How will the Leasehold Reform (Ground Rent) Act 2022 impact lease extensions?
Once the Act comes into force, new deeds of variation or lease extensions granted on an ‘informal’ (voluntary) basis will be subject to the Leasehold Reform (Ground Rent) Act 2022.
The Act will only be applicable to the ‘extended’ term in an ‘informal’ lease extension situation.
This means that if a lease has 80 years remaining and you add an additional 90 years :-
- the landlord can continue to claim the existing rent for the remainder of the 80 years (but the landlord will not be able to increase the existing ground rent above what it already is); and
- the landlord will not be able to claim any ground rent for the additional ‘extended’ period of 90 years.
This differs from ‘statutory’ lease extensions, where a landlord is forced to reduce ground rent to a peppercorn (zero) for the entirety of the lease term from the date the lease extension is completed; not just for the ‘extended’ period.
Read about the difference between statutory and non-statutory lease extensions here.
Read the full article
In the full article, Hannah discusses how the Ground Rent Act will affect leaseholders with existing onerous ground rent and how it'll affect ongoing lease extensions.