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HomeSector InsightsReal EstateWhat is the Ground Rent Reform Act?

What is the Ground Rent Reform Act?

If you are a lease holder for a property in England or Wales, you’ll usually pay an extra annual payment to the landlord of the property, this is called Ground Rent.

What Does the Act Do?

The 30th of June 2022 saw the introduction of the Ground Rent (Leasehold Reform) Act 2022, which is the first stage of the government’s plan to make leasehold property ownership more affordable, fairer, and more transparent. The goal was to ban ground rent on new residential leases while the cost of living rises elsewhere. This act has limited ground rent to a ‘peppercorn’ rent, which historically meant that ground rent was as minimal as possible, often ‘an annual rent of one peppercorn’.

If a lease was granted on or after the 30th of June 2022 then the lease holder won’t be faced with financial demands for ground rent.

Or if a landlord tries to charge their tenant ground rent in violation of the act, then they will be liable to receive a financial penalty that could range from anywhere between £500 and £30,000.

If you have paid ground rent since the act has been in effect, you may be liable for a refund on that money. For example, if you live in Chelmsford and your landlord hasn’t contacted you about this, you could search “solicitors Chelmsford” for professional advice on this.

Historical Issues with Ground Rent

Ground rent could be fixed, or it could go up. This was called ‘escalating ground rent’.

In the past ground rents were fixed at a very low rate, but in the last 10 years escalation clauses and higher ground rents were introduced. These have caused ground rent to rise by a major amount and in a lot of cases it went up by thousands of pounds.

In a long lease (those exceeding 21 years), the ground rent is often hundreds of pounds a year which the leaseholder does not even benefit from paying. The landlord is not legally required to provide any kind of service in return.

When ground rent exceeds £250 (£1000 in London) per annum then a lease may be classed as an AST (assured shorthold tenancy). If the ground rent falls into arrears for three months or more then the leaseholder becomes vulnerable to what’s called a

Ground 8 possession order. When this happens, a court will grant the landlord greater powers over the property.

Under these circumstances the landlord can take possession of the property and bring the lease to an end. This means that rather than going through courts and legal proceedings, the landlord can bring the lease to an end much easier without even giving you any time to get the money together or protect yourself.

These problems caused debates within parliament because of the growing pressure on the government, with people expecting the laws to change to fix this issue. 

Where Does the Act Not Apply?

Firstly, there is a transition that applies to regulated leases retirement homes, which means that lease holders in retirement homes will have to pay ground rent until at least the 1st of April 2023.

Other than that, the Act will not apply to a few different circumstances:

  • Voluntary lease extensions, which can retain the ground rent level of the original lease period.
  • The lease is not a regulated lease.
  • If the lease was granted before the 30th of June 2022, as no existing leases will change under the act (although the government means to address the issue of paying ground rent on existing leases sometime in the future).

Going forward, it’s a hope that the Ground Rent Reform Act creates a more level playing field for those who wish to buy a home more affordably. It stops the worry that the amount of ground rent you’d have to pay could go up by a large amount of money.

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