On 8 February 2022, the Leasehold Reform (Ground Rent) Act 2022 (LR(GR)A 2022) received Royal Assent. LR(GR)A 2022 aims to restrict the charging of ground rents in new or replacement long leases of individual dwellings.
What is ground rent?
Ground rent refers to a low or nominal rent that is paid under a long lease which has been granted at a premium. It is usually payable once yearly or twice half yearly by the tenant to its landlord. Ground rent differs from service charge as it is not intended to reimburse the landlord for costs incurred for the maintenance or provision of services for a property.
LR(GR)A 2022 will apply to new leases or replacement/re-granted long leases, being leases granted for a term of more than 21 years or that are perpetually renewable. It does not apply to leases of commercial property, new long leases of more than one dwelling (house or flat), existing long leases of one dwelling or new long leases that are not granted at a premium (although there are some minimal exceptions in this regard). Under the new regulation, these types of leases will be referred to as ‘regulated leases’.
Once brought into force, requiring payment of ground rent exceeding an annual rent of one peppercorn (nil) will be prohibited concerning new long regulated leases of individual dwellings in England and Wales only.
Why was there reform?
The new regulation was prompted by the emergence of ground rents subject to frequent rent review, resulting in steep increases in ground rent payable and, in some cases doubling ground rent on each rent review. Some existing leaseholders encounter difficulties when trying to sell or re-mortgage their property or find it costly to buy the freehold through enfranchisement.
Finally, following several consultations on leasehold reform, LR(GR)A 2022 is being brought in to tackle these issues. Further leasehold reform is required and anticipated, but the LR(GR)A 2022 is the first of many steps towards improvement in the property market.
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