What You Need To Know About Ground Rent Reform

What is Ground Rent?

In order to enforce the terms of a lease a ground rent must be set. Ground rent is usually an annual amount stated in the lease payable to the Freeholder for the “renting” of an apartment above the Freeholder’s land.

What is Ground Rent Reform?

Leasehold reform has been on the government’s radar for a number of years, and its plans to outlaw “unfair leasehold practices” is now an Act of Parliament.

The first aspect to be tackled is the well-publicised concern around ground rents in long residential leases. These have been targeted because leases with onerous escalating ground rent provisions are now becoming extremely difficult to sell or mortgage.

Rise of the Peppercorn Rent

The new legislation should take effect later this year and will effectively abolish new ground rents by reducing them to a peppercorn.

What is a Peppercorn Rent?

This is a term that goes back centuries and any existing leases that have this are likely to be very old. It comes from the fact that in the past many leases had such tiny ground rents that freeholders stipulated that the rent should, instead of money, be a peppercorn to save them the trouble of collecting the money. Other kinds of token or nominal rents, such as a single red rose, may also be referred to as peppercorn rents.

So, basically a peppercorn rent has no financial value but refers to the practice of providing a peppercorn as a form of token consideration to make a binding contract

New Peppercorn Rules

The Leasehold Reform (Ground Rent) Act 2022 will put to an end ground rents for new, qualifying, long residential leasehold properties in England and Wales. This is all part of a package of significant property law changes that are taking place.

The Act’s provisions are intended to lead to fairer, more transparent homeownership for thousands of future leaseholders.

Once it commences, this Act means that if any ground rent is demanded as part of a new residential long lease, it cannot be for more than one peppercorn per year meaning that future leaseholders will not be faced with financial demands for ground rent.

This does mean there will a two-tier property market for pre-existing leasehold apartments with “expensive” ground rents due annually for the remaining term of the lease and new apartments with no ground rents at all. Clearly this will make pre-existing properties much less desirable and their value could decrease as a result.

More detailed information about the Leasehold Reform (Ground Rent) Act 2022 can be found here

If you are a landlord already or considering purchasing your first buy to let – contact Horizon Lets today for friendly and honest advice about property management.