Long residential leases – those exceeding 21 years, will frequently require the leaseholder to pay the landlord an annual ground rent. The lease will set out who is responsible for payment, how much is due, and when it must be paid. 

The Leasehold Reform (Ground Rent) Act 2022

This Act introduced significant reforms to address unfair ground rent terms in residential leasehold properties. In recent years doubling ground rent clauses and index linked ground rents were making it impossible for leaseholders to obtain a mortgage or sell their property. As of 30 June 2022, new residential long leases in England and Wales will only require a peppercorn ground rent. 

Implications for Landlords

A lease is considered a regulated lease under the Act if:

• It is a long lease - that is a lease with a term exceeding 21 years of a single dwelling; 
• it was granted for a premium;
• It is granted on, or after, the commencement date ( 30 June 2022, or 1 April 2023 for retirement homes);

The peppercorn limit will not apply in the following situations:

• lease granted before the commencement date;
• leases granted pursuant to an agreement for lease entered into before the commencement date;
• voluntary and non-statutory lease extensions which can retain the existing level of ground rent for the remainder of the original lease period, but must reduce the rent to a peppercorn for the extended period. (Statutory lease extensions are not covered by the Act and must already charge a peppercorn rent);
• a lease that is not a regulated lease;
• a lease  for community-led housing;
• a lease for certain financial products;
• business leases;
• shared ownership leases ( but only in respect of the landlord's share)

For landlords who have granted new leases on or after the commencement date   - Only a peppercorn ground rent can be charged.

For existing leases granted before the commencement date - Ground rent may still be demanded in accordance with the lease terms. 

Ground Rent Demands: Legal Notice Requirements

Under Section 166 of  the Commonhold and Leasehold Reform Act 2002  the leaseholder will not be liable to pay the ground rent unless the landlord has given notice relating to the payment. The  notice must be in the prescribed form as set out in The Landlord and Tenant (Notice of Rent) (England) Regulations 2004  or the Landlord and Tenant (Notice of Rent) (Wales) Regulations 2005.

A compliant Ground Rent Demand Template is available in Property.