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Update: Decoding the Government's ground rent reforms

Posted on 18 May 2022

Following on from our podcast with Philip Rainey QC, we have news that the Leasehold Reform (Ground Rent) Act 2022 (the "Act") has now been passed and will come into force on 30 June 2022.

There have been only a few changes since our last update. Broadly, the effect of the Act is the same: to limit the ground rent on new, qualifying long residential leasehold properties in England and Wales to one peppercorn per year – effectively of nil value.

What leases will qualify under the Act?

The Act will apply to 'regulated leases' as defined by section 1(1) of the Act. Subject to certain exceptions, these are long residential leases granted for a premium, for a term of 21 years or more and entered into on or after 30 June 2022.

The provisions will apply to retirement properties from 1 April 2023.

What leases are excluded from the Act?

The Act excludes certain leases including business leases, statutory lease extensions, community housing leases and home finance plan leases.

The Act will not apply retrospectively and as such it will not abolish ground rents payable under existing leases.

Will lease extensions be affected?

Existing leaseholders entering into voluntary lease extensions after 30 June 2022 will have the ground rent for the extended terms of their leases reduced to a peppercorn. They will continue to pay the ground rent currently payable under their existing leases (and any revised rent provided for) up to the expiry date of the existing term.

Are there any sanctions for landlords who do not comply with the Act?

Landlords who do not comply with the provisions of the Act will face heavy financial penalties of between £500 and £30,000.

How we can help

The Act will bring wide ranging and substantive change to the way that leasehold property is owned and managed going forward. Mishcon de Reya's Real Estate team is able to provide advice and assistance in relation to the practicalities of the operation and implementation of the Act to both landlords and tenants as well as commercial investors and developers.

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