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.
What options do leaseholders with an existing onerous Ground Rent have?
In short, if a landlord doesn’t want to grant a deed of variation to assist with onerous ground rent, leaseholders can use a statutory lease extension to reduce their ground rent to a peppercorn (essentially, nil).
This option is only available if the leaseholder has owned their property for two years or more
How does the Ground Rent Act affect ongoing lease extensions?
If your lease extension is on the ‘statutory’ basis, then nothing has changed; you can continue as you were.
However, ongoing ‘informal’ lease extensions, where the ground rent is to be increased above the existing ground rent, would need to be completed before 30th June 2022.
Lease Extension Solicitors
Our specialist Leasehold Property Team is one of the largest in the region and are happy to discuss any of the issues outlined in this article.
If you have any questions, please call 01202 499255 and we can discuss your specific circumstances.
We also offer all new clients a free initial chat with one of our bright, knowledgeable lawyers.
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