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. From that date the Act prohibited the charging of a financial ground rent for most new regulated leases². Ground rent for new leases is limited to a nominal or zero value, called a "peppercorn" ground rent³.

The change followed a Government announcement on 7 January 2021 that legislation would be introduced to set future ground rents to zero¹. The Government announced on 21st December 2017 that it would ban the practice of selling new houses on leases², and a consultation, Tackling unfair practices in the leasehold market, attracted 6,000 responses, with a summary of responses and the Government response published in December 2017¹.

The Act applies to new leases, not existing ones. If a lease was originally granted before 30 June 2022, ground rent is usually still payable, including where the property was bought from another leaseholder after that date and the existing lease was transferred³. For new leasehold retirement flats and houses, the change took effect from 1 April 2023⁵.

Estimates of the size of the sector differ. The Department for Levelling Up, Housing and Communities estimates around 4.98 million leasehold homes in England, of which 70% are flats and 30% are houses, with around 8% of houses in England leasehold¹. The Building Societies Association cited an estimate of 4.5 million leasehold homes in England, of which 69% are flats and 31% are houses⁴. The Leasehold and Freehold Reform Act 2024 explanatory notes state the residential leasehold sector represents one in five (4.98 million properties) of the English housing stock and one in six in Wales (approximately 235,000)².

Why it matters for households

The Act changes what is charged on new leases, not what existing leaseholders already owe. Anyone granted a lease on or after 30 June 2022, or 1 April 2023 for new retirement leases, does not usually pay ground rent⁵. Shared ownership leaseholders usually pay no ground rent either, though ground rent may become payable if they buy more shares up to 100% ownership, depending on the lease³. Where a lease is extended through the formal route, ground rent is no longer payable; an informal extension agreed with the landlord may still carry ground rent for the rest of the original term, at no more than the original terms³.

Lenders set their own criteria. Accord Mortgages states that any new leases from 30 June 2022 must not charge more than a nominal amount for ground rent, such as £1 annually, including voluntarily extended leases, and that there should be at least 85 years unexpired lease remaining at the start of the mortgage application⁶. Borrowing on a leasehold property therefore depends on both the lease terms and the lender's rules.

What happens next

The Leasehold and Freehold Reform Act 2024 received Royal Assent on 24 May 2024². Its measures include a new right for leaseholders who already have very long leases, with over 150 years remaining, to buy out their ground rent without extending the term or buying the freehold². Lease advice states that if a leaseholder has at least 150 years left on the lease they will be able to pay a one-off amount to eliminate ground rent completely, without extending the lease⁵. It adds that the government is still consulting on some details of how ground rent buyouts will work and whether there are exceptions, and that the changes cannot be introduced until the Commonhold and Leasehold Reform Bill has been passed⁵. No commencement date for those measures has been reported in these documents.