By Lava Taha, Solicitor, Penman Sedgwick LLP

The Government recently implemented some important changes that will affect leasehold properties although these have not yet substantively come into force.

The Leasehold Reform Act (Ground Rent Act) 2022 received royal assent on 8th February 2022 and will limit the ground rent chargeable on most new long residential leases to one peppercorn per year. It will also prohibit payment of administration charges in relation to peppercorn rents. Subject to exceptions, the ground rent restrictions will apply to leases of dwellings granted on or after commencement of the relevant provisions.

Certain types of leases will also be excepted from the ground rent restrictions: businesses leases, statutory lease extensions of houses and flats (although these do currently reduce the ground rent to a peppercorn), community housing leases and home finance plan leases.

While this will be welcome news for owners of residential leasehold property the provisions are yet to come into force but the charges will afford protection to leaseholders. If a new lease or lease extension is granted with an escalated ground rent or rent review provision, financial penalties will apply. Fines are subject to a statutory minimum of £500 and a statutory maximum of £30,000. Additionally, the enforcement authorities have the ability to recover any rent prohibited by the Act that has been paid by a leaseholder to a landlord or to any person acting on behalf of a landlord, plus interest.

The Act does not apply to ground rents in existing leases, however we understand that there is parliamentary pressure for the Government to introduce a similar bill to cover existing leases and the ground rent and rent review provisions in them. In addition, the Government has re-opened the consultation on changes to the enfranchisement and lease extension legislation. Prospective changes may include enabling leaseholders to extend their leases by an additional 990 years and, for those with very long leases, buy out the ground rent without having to extend the lease term. The Government is also looking to reduce premiums and costs payable by leaseholders.

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