23 Aug Do I Still Need To Pay My Ground Rent?

Posted at 00:00h in Commercial Property Law by

The Leasehold Reform (Ground Rent) Act 2022 came into force with effect on 30 June 2022, abolishing ground rents on all new long leases. Read on to find out what it means and how it might impact you.

What is the Leasehold (Ground Rent) Act 2022?

The Act puts an end to the unfair practices, where leaseholders unwittingly became trapped in agreements to pay escalating ground rents. The government states that, “From 30 June 2022, landlords of regulated leases must not require a leaseholder to make a payment of prohibited rent.”

Instead, a peppercorn rent, which is effectively zero, must now be payable under new leases, including on retirement housing (effective 1 April 2023).

Lease extensions for flats remain exempt from provisions of the 2022 Act. If a lease is extended pursuant to the Leasehold Reform, Housing and Urban Development Act 1993, the ground rent will be reduced to a peppercorn as part of the statutory process.

Currently, ground rent still must be paid under leases (pre-extension) until the end of the original term.

Leaseholders with a rent reserving lease will still be obliged to pay that rent. However, the Completion Market Authority (CMA) secured commitments from major homebuilders to stop them charging doubling ground rents.

Some developers/other leaseholders are agreeing to vary ground rent provisions in existing leases, so the rent is increased, sometimes at less frequent intervals by reference to the RPI.

Points of contention?

Leaseholders with existing ground rents will find their leases unmortgageable and unmarketable.

So what is the solution? Leaseholders can seek to extend the lease via the statutory route. Although they might not necessarily need an extended lease term, the effect is that the rent will be reduced to a peppercorn.

Where ground rent exceeds £1,000 in London and £250 elsewhere in the country, a landlord will have mandatory right to secure possession where the ground rent is in arrears. Most lenders will be cautious to lend against leasehold property where the rent exceeds that limit.

Learn more about the Leasehold (Ground Rent) Act 2022 from the government website here.

For more information and tailored legal advice about leaseholds and leasehold extensions for residential and commercial properties:

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