Recap: The Leasehold Reform (Ground Rent) Act 2022

2022 saw the implementation of the first phase of the Government’s leasehold reform package which aims to make buying a leasehold property or extending the lease on a leasehold property, "easier, faster, fairer and cheaper".

Changes introduced by the Leasehold Reform (Ground Rent) Act 2022

The Leasehold Reform (Ground Rent) Act 2022 ('the Act') came into force on the 30th June 2022 and abolishes ground rents for the majority of long leaseholds in England and Wales. On 9 November 2022, Lucy Frazer, the Minister for Housing and Planning, said that “further leasehold reforms” will be introduced later in this Parliament.

At the time of writing this article, leasehold reform in 2023 is awaiting discussion in parliament.

Ground rent act 2022: a peppercorn ground rent

Under the Act, ground rents on 'regulated leases' have been capped at a peppercorn (£nil). A 'regulated lease' is a long lease of more than 21 years of a single house or flat which is granted for a premium, after 30th June 2022. Material fines of up to £30,000.00 can be imposed on freeholders attempting to charge leaseholders ground rents in relation to a regulated lease.
However, the Act does not apply retrospectively. This means that a landlord may charge a ground rent above a peppercorn for long leases entered into prior to the 30th June 2022.

Furthermore, the Act does not apply to 'excepted leases'. 'Excepted Leases' include:

• Business leases: this is where a lease expressly permits the operation of a business, but not including a home business within the meaning of Part 2 of the Landlord and Tenant Act 1954 (see section 43ZA of that Act).
• Statutory lease extensions: these include leases which have been granted to tenants of leasehold houses entitled to extend their lease under the Part 1 of the Leasehold Reform Act 1967 and tenants of flats entitled to extend their lease under the Leasehold Reform, Housing and Urban Development Act 1993.
• Community housing leases: these leases are where the freeholder is a community land trust.
• Home finance plan leases: home finance plan leases include where a rent to buy finance arrangement is in place.

Leasehold reform 2022: non-statutory lease extensions

It is still possible for leaseholders to extend their lease via the non-statutory (informal) lease extension process. This process involves a leaseholder and freeholder agreeing the terms for a lease extension, with advice provided to you by your lease extension solicitor. This process is not governed by any legislation. Therefore, you cannot 'force' your freeholder to grant you a non-statutory lease extension. Your freeholder may withdraw from the non-statutory lease extension process at any time.

Following the introduction of the Act, freeholders can no longer grant non-statutory lease extensions with ground rents in exchange for a reduced premium (purchase price). Further, freeholders cannot charge a ground rent to their leaseholder on the newly extended term of any existing lease. For example, if a leaseholder and freeholder agree informally to extend a lease which retains a ground rent and has 80 years remaining to 125 years, the freeholder can continue to charge a ground rent for 80 years but cannot charge a ground rent for the following 45 years. Also, the freeholder cannot increase the ground rent in the existing term of the lease when carrying out the lease extension. The ground rent charged up to the end date of the existing term can be no more than the ground rent stipulated by the existing lease.

Leasehold reform act 2022: shared ownership leases

Shared ownership leases are also impacted by the Act. Shared ownership leases are considered 'regulated leases' for the purposes of the Act. However, if you are the tenant of a shared ownership lease and have 'staircased' (bought more shares in a property following purchase) to 100% ownership, different rules will apply than if you owned a percentage share in your property of less than 100%. The different rules are outlined below.

Rules applying to tenants of shared ownership leases with an 100% share

Under the Act, Ground Rent is capped at a peppercorn (£nil) for shared ownership leases entered into after the 30th June 2022 in respect of the 'tenant's share' in the property. The tenant’s share in the property is the tenant's initial share in the property, plus any additional share or shares in the property which the tenant has acquired. Therefore, if a tenant who previously owned a 60% share in a property then staircased to a 100% share, their freeholder will no longer be able to charge the tenant a ground rent. This is because the tenant will have an 100% share in the property and freeholders can no longer charge ground rents on the tenant's share in a property.

Rules applying to tenants of shared ownership leases with less than an 100% share

In some shared ownership leases, tenants will pay rent in respect of the share in the property owned by them, and in addition, will pay rent in respect of the share owned by the freeholder or housing association. Under the Act, if a tenant owns less than an 100% share in a property, a freeholder can charge 'any' ground rent in respect of the share in property owned by them. However, as outlined above, ground rent will be capped at a peppercorn (£nil) in respect of the tenant's share. For example, if a shared ownership lease was granted after 30th June 2022 and reserved a 40% share to the tenant with the freeholder retaining a 60% share, the tenant would not pay ground rent in respect of their 40% share, but the freeholder could charge a ground rent in respect of their 60% share.

If you require advice on a lease extension, particularly in light of the changes details above, including issues with ground rent, please contact one of our specialist leasehold lawyers.