The majority of flats owned in England and Wales are ‘leasehold’, meaning the owners hold their flats for a fixed period of time and subject to the various rights and obligations within the ‘lease’ for their property.
One of the obligations within leases is to pay rent – either to a freeholder, or some other entity which holds its own ‘superior’ lease. Ground rent is the term used to differentiate longer term residential lease rent from higher ‘rack’ rent charged by commercial landlords for business premises.
Historically, freeholders and landlords had an unrestricted ability to charge flat owners whatever was agreed between the parties and set out in the lease. However, that has now changed, courtesy of the Leasehold Reform (Ground Rent) Act 2022. These new rules were brought into force on 30 June 2022 following considerable pressure from leaseholders and mortgage lenders nationwide after rising and high ground rents left swathes of property unmortgageable and as a result, often unsaleable.
New longer term residential leases including lease extensions which have been or are to be completed from 30 June 2022 are governed by new rules preventing landlords and freeholders charging ground rent which is any financial amount – whether it be £1 annually or £5,000. A new standard rate of a ‘peppercorn’ annually has been set – the practical equivalent of nil.
Failure to abide by these rules can end in severe consequences for the unwary freeholder – financial penalties of up to £30,000 and repayment of the restricted payment should be enough of a deterrent to ensure that repeat offenders will be few and far between.
As ever, exceptions apply – business leases are not caught by the new rules, nor are existing leases, community housing leases, shorter term lettings and more. The wary homeowner/freeholder should check if in doubt.
The above does not offer a comprehensive outline of all of the current rules and regulations involved in the change to the rules surrounding residential lease ground rents – merely a general outline of the change in rules. We would recommend you seek legal advice based on your own circumstances.
If you are a residential leaseholder or a freeholder and you need legal advice whether connected to the points made in this article or otherwise, please do not hesitate to get in touch via alex.crabbe@rawlinsdavyreeves.com or 01202 558844.
