What is ground rent act (2022) and why it is important

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On 30 June 2022, the new Leasehold Reform or the ground rent Act 2022 took effect, prohibiting landowners of leasehold properties from collecting ground rents for newly constructed, lengthy residential leasehold properties. Where landlords charge ground rent when they shouldn’t, there could be penalties of up to £30,000. 

Tenants and landlords wishing to purchase, rent, or lease property in Welling must work with well-reputed estate agents in Welling. Their expertise in dealing with high-quality residential property can help tenants get houses at the best price. They can also offer attractive property rent to landlords for their property while staying compliant with current laws. 

Understanding Ground Rent

The legal phrase “ground rent” refers to the payment of rent. It is typical for anyone with a property tenure of 21 years or more to pay around a hundred pounds a year of ground rent annually. The landlord, the legal owner of the long-term leased property, does not have to provide a specific service in exchange for the rent, which is where the difficulty lies. Laws addressing the long leasehold industry use the word “rent,” like in other areas of property renting; however, does not explicitly define ground rent in English or Welsh law.

The implications of the Ground Rent Act 

Typically, the leaseholder of a leasehold property is responsible for paying an annual ground rent; however, this has resulted in individuals paying yearly rent increases without understanding why they are doing so or receiving any benefit in return. Landlords of regulated leases are banned from requiring a leaseholder to pay ground rent as of 30 June 2022.

Leaseholders who voluntarily extend their leases will be downgraded to “peppercorn” status under the new Act. This means landowners may ask for no further fees. Typically, the peppercorn restriction only focuses on new residential contracts signed after the Act’s implementation or leases signed after 30 June 2022. You won’t be subject to ground rent obligations if you recently purchased a lease contract regulated by the Act after it came into force. However, it has a few exceptions, as mentioned below:  

  • Ongoing leases
  • Leases issued by agreements made before 30 June 2022
  • Commercial leases
  • Legal lease extensions
  • Leases for public housing
  • Leases under home financing plans

Meaning Behind Peppercorn

In the past, a “peppercorn” ground rent referred to a minimal or cheaper rent. A peppercorn rent is officially defined in this Act for the first time as “an annual rent of one peppercorn.”

The Act limits ground rents on future leases to a peppercorn rate, reducing these ground rents to nil financial worth unless the contract is excluded or unregulated.

If You’re a Leaseholder

The ground rent will be zero on the newly extended period for current leaseholders who opt to renew their leases informally (non-statutory). Unlike statutory lease extensions, which require a landlord to lower ground rent to a peppercorn for the duration of the lease term starting on the day the extension is finished, this one does not. Existing tenants who decide against renewing their leases could ask their landlord for a deed of modification to help with excessive ground rent.

If You’re a Landlord

The government does not anticipate landlords asking their leaseholders to contribute a peppercorn as a fee, and a landlord is not obliged to levy or obtain a peppercorn rent.

Additionally, the Act prohibits landlords from withholding fees from paying a peppercorn rent, which lessens the motivation to charge a leaseholder a peppercorn rent. For each qualified lease, local authorities may levy penalties of up to £30,000 under the Act if the landlord requests ground rent but does not return the money within 28 days.

To Conclude

If someone is getting into a lengthy residential lease and none of the aforementioned exemptions applies, the Act will benefit them in exchanging agreements on the acquisition of a leasehold property after 30 June 2022. A leaseholder would often profit from the Act if the lease is lengthy for a single residence; it was given with a premium—typically the purchase price—and it is not an exempted lease, which means that none of the exclusions applies.

If you want to become a leaseholder and enter a long lease, consult Robinson-Jackson, the reputable agent consult for real estate in Welling. We can even help landlords looking to sell, buy, rent or let their properties by staying in compliance with ever-changing laws around the real estate industry. You can be sure that you’re working with one of Welling’s top estate agents.

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