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The Department for Levelling Up, Housing and Communities confirmed the Leasehold Reform Act 2022 will come into law in England and Wales on 30th June 2022 after receiving Royal Assent on 8 February.

What is contained within the legislation?

The new bill applies to leasehold properties in both England and Wales, and restricts the ground rent on all new leases of residential property to a ‘peppercorn’ rent. That is to say, ground rent will be eliminated to essentially zero on all new leaseholds.

The provisions will not apply retrospectively, although any extensions made to existing leases must have a rent of zero.

The new legislation seeks to make leasehold ownership fairer and more affordable on leases of new flats and houses.

Retirement properties will not be affected by the new bill until 1st April 2023.

Five years of planning.

In October 2017, The UK Government announced plans to combat the practice of newly built properties being sold under leasehold terms rather than freehold, and to diminish the use of ground rents on new lease agreements.

What is…

A Freehold:  The Indefinite ownership of a property and the land it stands on.

A Leasehold:  The temporary ownership of a property, but not the land it sits on, with a lifespan that is dependent on the length of the lease.

Ground Rent: Regular payments made by the owner of a leasehold to the freeholder, as required by the terms of the lease. In other words, rent paid by the leaseholder to the freeholder for the occupation of the land that the leased property sits on.

Who will the changes impact?

From 30th June, freeholders will no longer be able to impose ground rent in any brand-new lease and could face fines of £500 to £30,000. This is set to make freehold ownership less attractive to potential investors.

Under the new legislation, leaseholders will be able to extend their leases by a maximum of 990 years without paying ground rent to the freeholder. Many leaseholders are already able to extend their current lease by 90 years, so it is not clear if this proposal will have a large impact on leaseholders.

Other proposed changes include the abolishment of marriage value charges – additional charges due to landlords when a lease, with a remaining term of less than 80 years, is extended.

Do you have questions regarding the new legislation?

This is a significant change to the housing and leasehold sector with only a few months warning from the UK Government. Those advising freeholders and leaseholders should seek to act quickly and ensure they are prepared for the changes.

Our team of experts in commercial and residential property conveyancing always seek to keep up to date with changes in legislation for the benefit of our clients.

If you have any further questions regarding the changes coming into place on 30th June or are seeking general advice then please contact us.

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