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Law expert warning about leasehold reforms

Leasehold and ground rent law reforms will not prevent pitfalls for those buying existing properties, according to experts at West Yorkshire-based law firm, John Howe & Co. During recent years some developers regarded annual ground rents as an easy stream of income and have driven through hefty increases for owners of leasehold residential properties. In an attempt to overcome problems this has caused in the housing market; the government has brought in new legislation to clamp down on this practice. The Leasehold Reform (Ground Rent) Act 2022, which is due to come to force in the middle of this year, will limit the ground rent that can be charged on most new residential long leases of flats and houses, and on the extended term of any lease extension, to a peppercorn per year. It also will outlaw the charging of administration charges for peppercorn rents. However, John Howe, of the Pudsey law firm, is warning that the new act, which affects England and Wales, is not retrospective. “Ground rents have not been abolished completely and will continue to be an issue for people purchasing flats and houses that have been constructed before the new law comes into being.” He also cautioned: “Developers, some of whom have seen charging ground rents as a form of cash cow, are taking a piecemeal approach to the abolition or reduction of ground rent on existing long leases. “A property with a high ground rent or unacceptable mechanism for review could lead to it being unsaleable. This could be because a buyer is put off by the steep charge or the unacceptable level of ground rent makes it impossible to secure a mortgage on the home.” If a property’s ground rent exceeds £250, or £1,000 in London, the lease can be terminated by the leaseholder if the property owner cannot afford to pay it, possibly leading to them losing the roof over their heads. Many current long leases also include reviews at set periods, which can result in unacceptably high levels of ground rent. Mr Howe advises that anyone purchasing an existing flat or house on a long lease should obtain specialist advice before committing to a deal.

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