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We look at all things ground rent abolishment, including what the leasehold reform means for both leaseholders and freeholders...

The government brought the Leasehold Reform (Ground Rent) Act 2022 into force in June 2022. It lays out a new world order and ends ground rents for most new extended residential leasehold properties. The ground rent act will ensure that homeowners are treated more fairly and that there is a more transparent future for leaseholders and freeholders.

The ground rent scandal rocked the leasehold system back in 2017, which saw leaseholders having to contractually pay burdensome and escalating ground rents with no precise service in return. The leasehold act will ensure this never happens again.

This article will delve into what ground rent is and what the new leasehold reform means for leaseholders and freeholders. Looking for something specific?

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What is ground rent?

Ground rent is where the leaseholder pays a yearly fee to the property owner. The terms of ground rent can be found in the lease and used to be paid either yearly, half-yearly or quarterly. There are two routes of ground rent; fixed and escalating. Escalating ground rent increases over the lease period, whereas fixed ground rent is where the ground rent stays as a permanent fee throughout the lease.

What is peppercorn ground rent?

A peppercorn rent often has a nominal or low value, usually £1 to £10 per annum. The term comes from historical means: one peppercorn would pay rent.

Have ground rents been abolished?

On the 30th of June 2022, a new legislation, the Leasehold Reform (Ground Rent) Act 2022, was brought into tuition. This new set of laws means that newly built properties would have their ground rent set to a peppercorn ground rent. This effectively abolishes ground rent for new builds built after April 2023.

What does the leasehold act mean?

The leasehold act means any ground rent imposed as part of a newly regulated residential long lease cannot be more than one peppercorn. As a result, most new leaseholders won’t face increasing ground rent.

The Act also enforces a ban on landlords charging administrative fees for collecting peppercorn rent. If a landlord decides to charge ground rent, they will face penalties between £500 and £30,000.

Who will enforce the act?

The enforcement of the leasehold act will be down to the Trading Standards teams in England and Wales. District councils may also enforce the Act in England, although they are not required to do so.

Will landlords make leaseholders pay with an actual peppercorn?

Landlords do not have to charge or collect the peppercorn ground rent; they do not have to request that you pay them a peppercorn. The Act bans landlords from charging a fee while collecting the peppercorn rent, so this should differ from someone charging you an actual peppercorn.

Which leases does the act’s peppercorn limit apply to?

The Leasehold Reform Act applies to regulated new leases that:

  • Have a lease granted after the 30th of June 2022.

  • Have a long lease (longer than 21 years) for a single dwelling.

  • Were granted a purchase price that includes where a lease has been varied by a deemed surrender and regrant, so no premium was required.

  • It is not an expected lease.

Any statutory lease extensions for flats, regardless of the Act, must be granted at a peppercorn.

Where does the peppercorn limit not apply?

The peppercorn limit does not apply when:

  • The lease on the property is not regulated.

  • The buyer and seller exchanged contracts for the grant of a lease before the 30th of June 2022.

  • The lease is for a community-led property, business lease or financial product.

  • Voluntary lease extensions can stay the current status of ground rent for the rest of the lease period.

  • There is a shared ownership lease; rent is payable on the landlord’s share, and a peppercorn rent limit is applied to the leaseholder’s share.

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What should you do as a leaseholder?

If you are a leaseholder, please use the section below to guide you through the new leaseholder act, which has come into force, to protect your rights.

What should you do if your lease says you have to pay a ground rent?

The first thing you should do is check that the Leasehold Act protects your lease; you can do this by checking that the lease was granted after the 30th of June, 2022.

If the Act regulates your lease, you should informally request that the lease complies with the Act with your landlord. If this does not resolve the situation, you should take further action by contacting the Citizens Advice Consumer Helpline.

If a regulated lease has a term demanding payment of illicit ground rent, it must be treated as a permitted rent — a peppercorn rent. This will occur without any formal change to the lease. If there is a disagreement as to whether ground rent is allowed or prohibited, then the leaseholder or landlord can seek a declaration from the First-tier tribunal.

What should you do if you have paid a prohibited ground rent?

If you have been wrongly required to pay prohibited rent, you should request a refund from your landlord to be given to you within 28 days. The authority may still investigate the landlord and issue them a penalty if they deem it a serious offence. If they do not refund you within 28 days, you can contact the consumer helpline, and they will advise you on what action to take next.

Alternatively, you could request a recovery order from the First-tier tribunal issued by an enforcement authority. You can contact the local Trading Standards team, who can advise you.

How does the act affect statutory existing leases that charge ground rent?

If you have been wrongly required to pay prohibited rent, you should request a refund from your landlord to be given to you within 28 days. The authority may still investigate the landlord and issue them a penalty if they deem it a serious offence. If they do not refund you within 28 days, you can contact the consumer helpline, and they will advise you on what action to take next.

How does the act affect a voluntary lease extension that charges ground rent?

If you have negotiated a voluntary lease extension regulated by the Act, the new allocation of the lease that develops beyond the date of the initial term must only be a peppercorn rent. The ground rent arranged on the balance of the time of the original lease must not exceed the actual ground rent, and parties may acknowledge a lower ground rent for the balance of the initial term. You should seek professional advice when considering a lease extension.

What should you do as a landlord?

As a landlord, you should be careful about charging ground rent. The Leasehold Act prohibits it, and you could be liable to penalties should you set a ground rent.

What should you do if you charge a leaseholder a prohibited ground rent?

If you or someone on your behalf has charged a leasehold ground rent, you should refund it within 28 days of the charge being made. If you neglect to do this, you will be liable for an investigation made by the enforcement authority, issued with a penalty and taken to court or tribunal.

What action can the enforcement authority take against me as landlord?

If you fail to refund the charge, you will have 28 days to make reported accounts (notice of intent) about the alleged breaches. Following this notice, you will receive a final notification if the enforcement authority feels they have enough evidence to show you have committed a violation. They will impose a financial penalty on you as the landlord, even if the offence was made by someone else on your behalf. The penalty will differ depending on the severity of your crime but can range from £500 to £30,000.

Once the financial penalty has been issued, you will receive a recovery order that the authority can give against you. If the leaseholder has created their appeal to the First-tier Tribunal for a recovery authorisation under section 13 of the Act, then the authority cannot issue you a recovery order. The authority is also restricted if they have already made a payment recovery order.

The Trading Standards service enforces this process. If you are a leaseholder and believe there has been a breach of the Act, you can seek help from the Citizens Advice Consumer Helpline.

Is there anything else I can do as a landlord?

Are you looking to sell your leasehold property and break away from your ground rent without worrying about your sale falling through?

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Tom Condon

Tom Condon, one of our content writers, has fascinating expertise in sustainability in the property industry. Tom thoroughly understands the market and has experience in both residential and commercial property. He enjoys attending conferences and staying current with the most recent property trends.