From 30 June 2022, there will be new restrictions on charging ground rent on new residential leases in England and Wales.
The new restriction forms part of the Governments plan to make the leasehold market that much more accessible, however what impact will Landlords face and how much can leaseholds expect the save under the new law?
Ground Rent
The Leasehold Reform (Ground Rent) Act 2022 forms part of the Department of Levelling Up, Housing and Communities’ (DLUHC) plan to combat the rise in living costs and ultimately ‘create a fairer housing system’.
Under the current law, Landlords can charge an annual fee to the holder of Leaseholds otherwise known as Ground Rent. The annual fee collected by Landlords typically ranges from £50 to £500. This arguably outdated collection of Ground Rent often provides no additional benefit or service to the leaseholder and will unsurprisingly be welcomed by residential leaseholders.
New Restriction
When the restriction comes into effect on 30 June 2022, landlords will not be able to charge Ground Rent on new residential leases after this date. Tenants should be vigilant when purchasing leasehold property to ensure the terms of the lease do not include Ground Rent
Whilst seeking to create a more affordable residential leasehold market by reducing annual costs for residentials leaseholders, the new restriction will not apply to business leaseholds, statutory lease extensions and community housing leases.
Impact on Residential Landlords
The ban on Ground Rent will, naturally, reduce the annual income of residential Landlords. Landlords should take the new restriction into consideration when granting new leases to ensure all rent due under the Lease can be lawfully collected.
The DLUHC are also encouraging landlords to reconsider the Ground Rent they charge on existing leases, with the aim of reducing or removing the charge all together.
Wider Impact
The ban of Ground Rent is just one part of the Government’s wider Levelling Up Agenda, which aims to tackle the discrepancies in opportunities across the UK and to build a fairer society.
By reducing the annual costs of a leaseholder, the new restrictions aim to promote a more affordable living standard and make the property ladder more accessible. However, with the price of household bills rising sharply – with the average energy bill per household increasing by £700 alone – the Government will need to make more drastic changes to provide affordable housing and in fact ‘level up’ the country.
For any guidance on landlord and tenant matters of whatever nature, please contact our Property Team.
