There has been cause for concern for quite some time amongst leaseholders with escalating ground rents, leaving them trapped in a position of not being able to sell their properties. This is due to ground rent provisions contained within leases increasing during the term. Our useful guide will provide you with some important information on the Leasehold Reform (Ground Rent) Act and answer questions such as ‘when will leasehold reform happen?’.

In short, if you do not pay your ground rent in time, the landlord can sue you as well as take possession of your property. This is usually a low risk as you would just clear any arrears and the court could allow discretion to not allow the landlord to take possession.

Due to a legal anomaly, if the ground rent exceeds more than £250 (or £1,000 in London), the lease can be deemed to be an Assured Tenancy (AST). This would not allow the court to exercise discretion and a mandatory possession Order would be granted to the landlord; this would result in you losing your property and having no right to claim any compensation.

Solutions to Assured Tenancy

There are options available to you if you find yourself in this position:

  1. You can approach the landlord informally to negotiate a Deed of Variation which would vary the ground rent provisions but there is no requirement for the landlord to accept your proposal.
  2. You can extend your lease via the statutory route under the Leasehold Reform Housing & Urban Development Act 1993 (as amended) which would reduce the ground rent to a peppercorn (no monetary value).
  3. An indemnity policy may be available to a buyer purchasing with a mortgage. It is an insurance taken out on completion which protects the owners mortgage lender. A lender will have to provide consent to any indemnity policy as not everyone will accept this position. However, this will only protect the lender’s charge and not the owner. This does not solve the problem nor mitigate the risk for future marketability or value.

If the statutory route is undertaken, you will need to have owned your property for at least 2 years and the property would need to have been sold to you with a lease for longer than 21 years. This is a timely process as notice has to be served on the landlord in which they then have two months to respond to. 

These problems come to light when a person comes to sell and, as it is a lengthy process, not all buyers are prepared to wait. A seller can avoid the 2-year rule if they have owned the property for more than 3 years, then they can start the process and assign the benefit to a buyer.

Many lenders have made the decision not to lend on properties where the ground rent is initially high or could double or increase to an amount deemed unreasonable. Many owners of leasehold property have found that their property is now worth less than when they purchased it and they are unable to sell their property.

When will Leasehold Reform happen?

There are welcome changes coming, but only to some.

This Leasehold Reform (Ground Rent) Act received Royal Assent on 8th February 2022 meaning it is now an Act of Parliament (Law) but the provisions will not start until 30th June 2022.

The Act limits ground rent to a peppercorn rent for any new residential long leases. The aim of the Act is to prevent leaseholders becoming trapped in properties with escalating rents. It will apply to residential leases (a term of more than 21 years) granted for a premium and entered into from and including the day of when the Act comes into force. Its purpose is to make owning a leasehold property fairer. 

Unfortunately, business leases, statutory lease extensions of houses as well as flats, home finance plan leases and community housing leases are excluded. Retirement properties will be included but not until April 2023. Shared ownership properties are also included.

The Act will not apply retrospectively, so it will not affect leases that are already in existence. However, if an existing lease is surrendered and re-granted it may be caught by the Act and the new regulations will apply.

This is a continuing area of reform, and the Government is due to address the issue of paying ground rent under existing leases in the future.

Failure of Compliance

If ground rent is demanded which contravenes the Leasehold Reform (Ground Rent) Act and any payment from landlord to leaseholder is not returned within 28 days, a fine ranging from £500-£30,000 can be imposed.

Receive expert Leasehold Reform advice today

If you are thinking of selling your property and/or are concerned that you own a property with a lease that has increasing ground rent provisions and would like to discuss this, please do not hesitate to contact us. One of our experienced professionals would be more than happy to assist you.

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