Leasehold Reform (Ground Rent) Act 2022 comes into force

The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022 and applies to new lease agreements created on or after that date¹. The Act followed a government announcement on 7 January 2021 that legislation would be introduced to set future ground rents to zero¹. The Law Society describes it as putting an end to ground rents for most new residential leasehold properties in England and Wales².

The measure applies to new leases only. The government has separately consulted on options to restrict ground rents for existing leaseholders, and the Law Society reports that, subject to that consultation, a ground rent cap would be introduced through the Leasehold and Freehold Reform Bill². That consultation closed on 21 December 2023².

Leasehold is the dominant tenure for flats. The Department for Levelling Up, Housing and Communities estimates there are around 4.98 million leasehold homes in England, of which 70% are flats and 30% are houses¹. Around 8% of houses in England are leasehold¹. Land Registry data shows 24% of residential property transactions in 2022 were leasehold, around 207,000 transactions¹. The proportion of new-build houses sold as leasehold rose from 7% in 1995 to a peak of 15% in 2016, then fell to less than 1% in December 2022¹.

The Act is the first part of what the Law Society calls a two-part legislative package². The second part, the Leasehold and Freehold Reform Bill, had its second reading on 11 December 2023². The government has said the bill will increase the standard lease extension term to 990 years, with ground rent reduced to a peppercorn on payment of a premium, and remove the requirement for a new leaseholder to have owned their home for two years before extending the lease or buying the freehold². The Law Society states the bill does not currently deliver on the government's commitment to ban the sale of new leasehold homes, and that it would support an amendment to add this².

Why it matters for households

For anyone buying a leasehold property on a lease granted on or after 30 June 2022, the ground rent position differs from older leases: the Act applies to new lease agreements created on or after that date¹. Buyers of older leases are unaffected by the Act, and the position on capping ground rents on existing leases remains subject to consultation².

Ground rent is one of the charges a lender considers when assessing a leasehold home as security, alongside lease length, so the terms of an individual lease still matter to borrowing on a leasehold home. The Act does not change service charges, administration charges or the right to manage, which the Commons Library lists among the problems leaseholders report¹.

What happens next

The Law Society said it would monitor and influence the Freehold and Leasehold Bill as it progresses through parliament². The government's consultation on restricting ground rent for existing leases closed on 21 December 2023². The Commons Library notes a commitment to respond to the Law Commission's remaining recommendations "in due course"¹. No date has been reported for the remaining recommendations.