Any new residential leases created after 30th June 2022 are subject to the provisions of this legislation. The legislation prohibits leases granted after this date from carrying a ground rent aside from a ‘peppercorn’, which means Nil. Apart from new build leases created by Developers, this legislation also impacts lease extensions, since these are “new leases”, and therefore prohibits lease extensions from carrying provisions increasing the ground rent beyond those that are were expressed within the current lease.
In other words, a new lease extension may continue to provide for the same ground rent as contained in the current lease, but from the commencement of the extended period, the rent must become a peppercorn (nil).
A Landlord that seeks to collect illegitimate ground rent from such a qualifying lease will be liable for penalties under the provisions of the Ground Rent Act 2022.
The advent of this legislation will certain have an impact on the number of “informal” lease extensions granted by Landlords, considering one of their main motivations for granting such lease extensions was to increase the ground rents due under the lease, thereby increasing the value of the freehold. Which is something that could never be done under the statutory regime method which requires that ground rent must be reduced to a peppercorn. As such, Landlords no longer have a vested interest in being pro-active in the grant of lease extensions, and the prediction is that many will simply await the receipt of a formal claim notice (known as a “section 42” notice) from a leaseholder before cooperating with the grant of the extension. This Act is the first stage in a list of proposed leasehold reform by the government. It remains to be seen to what extent other proposals reach the statute books, but we eagerly await new developments.