Leases come in all shapes and sizes, and so dealing with the buying and selling of leasehold residential property can sometimes trigger feelings of dread among conveyancers, as they really have to get to know every last detail before going back to their clients with the findings or replying to enquiries.
When the deal involves ground rent, conveyancers have to bear in mind both their obligations to their clients, and in most cases, their obligations to mortgage lenders too. The past few years have brought about significant change, and “The Leasehold Reform (Ground Rent) Act 2022” represents the first stage of the government’s aim to make leasehold property ownership equitable and more affordable.
And the big question is, how will the Act impact buyers looking to purchase a leasehold property? And how will current leaseholders be affected?
Once the Act comes into force, a new ‘regulated long lease’ – which is defined by having a term lasting 21 years or more – in England and Wales will be prohibited from charging a ground rent of more than one peppercorn per year, which means no ground rent. Administration charges for the peppercorn rents are also prohibited under the Act.
The government is introducing these measures as a means of tackling what have in many cases become inequitable and onerous ground rent payments for tenants of long leases. The Act is designed to ensure leaseholders get a fairer, more transparent and more affordable deal, making owning one a more attractive proposition.
However, it’s worth noting that certain types of leases are not covered by the Act, and these include business leases, statutory lease extensions, community housing leases and home finance leases.
Homeowners of leasehold properties have often experienced issues with expensive ground rent fees. Indeed, the cost can be difficult to calculate, or worse, the lease may state that the ground rent doubles every so many years. The Leasehold Reform (Ground Rent) Act will ensure that people entering into new leases are safeguarded from these scenarios.
This is good news both for new homeowners and for the conveyancers who represent them, as the transactions will be smoother with fewer enquiries.
Unfortunately, this Act will not apply retrospectively, so existing leases will remain unchanged – but always check your rights, and an existing lease could end up under the Act if it is surrendered and re-granted. There may also be further legal amendments to come, as leaseholds continue to be in the spotlight.