What does the Leasehold Reform (Ground Rent) Act 2022 mean for leaseholders?

The Government has recently announced reforms to place a limit on the amount of ground rent that freeholders can charge leaseholders.

Whilst a freeholder owns the land, and any building thereon, a leaseholder only has a lease of part of that building (usually a flat) for a specific period of time; subject to compliance with the terms contained within the lease, and to paying the ground rent specified within the lease.

As well as ground rent being an additional expense for leaseholders to consider, leaseholders should be wary that if the amount of ground rent payable exceeds £250 per year (or £1,000 per year in Greater London) then the freeholder has greater powers to repossess the property (which brings the lease to an end) if the leaseholder defaults on their ground rent payments. The reason for this is that should the leaseholder default on their ground rent payments; then the law would instead consider their lease as an assured tenancy (freeholders are able to end assured tenancies easier than they are able to end leases). For this reason, there are many lenders who will refuse to lend on properties if the amount of ground rent payable exceeds £250 per annum (or £1,000 per annum in Greater London).

The Leasehold Reform (Ground Rent) Act 2022 aims to limit ground rents to a nominal amount. Whilst this will impact the income available to freeholders of properties which are leased (rather than let under assured shorthold tenancies), this will provide leaseholders with greater protection from their properties being repossessed by the freeholder. This will also prevent leaseholders being “stuck” with a property which they cannot sell if it would otherwise be considered unmortgageable.

There are expected to be a number of exceptions to this rule, but the Government are currently in the process of writing the legislation.

For any residential property advice, please contact the team on 01258 459361