Leasehold Reform 2022

[1stFlat22]

Can anybody explain this bit in layman's terms?
(1)(c) " it is granted on or after the relevant commencement day, otherwise than in pursuance of a contract made before that day"

We were hoping to complete a property purchase (leasehold with £250 of ground rent) by early July 2022. But I don't understand if the exchange of contracts being before the 30th of June would squash our hopes to be spared the hefty yearly rent?

We're going to talk to our solicitor anyway, but I know for a fact the seller (who is the freeholder granting a new lease) will fight to either keep the ground rent or make us pay for it somehow.

[AndrewDod]

In a free market you would on average be paying 10K or more for the purchase of the lease absent ground rent.

Bear in mind that properties without ground rent will likely be looked after less well by the freeholder, and this might degrade the property value in time (on average). Strange things happen around threshold times though.

£250 is hardly "hefty".

[Section20z]

The act only applies to new leases, is this one new ?

[Gordon999]

New leases from registered from 30 Jun 2022 onwards can only demand one peppercorn ground rent . The commencement of the Leasehold Reform (Ground Rent ) Act 2022 will stop ground rent being demanded in any new lease.

Your solicitor should explain this new law coming into force on 30 Jun 2022 to you. So don't exchange sale contracts until after this date has passed.

[1stFlat22]

Bear in mind that properties without ground rent will likely be looked after less well by the freeholder, and this might degrade the property value in time (on average). Strange things happen around threshold times though.

£250 is hardly "hefty".

I wish that was the case, unfortunately our freeholder has already made it clear that the 2 leaseholders will have to pay for everything to do with the maintenance of the building, despite the fact he himself has done the bare minimum and we will have to pay for expensive building insurance because of this. In London protesting is useless, ground rents are only for the pockets of freeholders.

[1stFlat22]

The act only applies to new leases, is this one new ?

Yes, we're being granted a new lease.
I just don't understand if we can exchange contracts before the 30th of June to fall into the Leasehold reform? or it must be after that date?

[1stFlat22]

New leases from registered from 30 Jun 2022 onwards can only demand one peppercorn ground rent . The commencement of the Leasehold Reform (Ground Rent ) Act 2022 will stop ground rent being demanded in any new lease.

Your solicitor should explain this new law coming into force on 30 Jun 2022 to you. So don't exchange sale contracts until after this date has passed.

Ahhh that's what I feared. The freeholder is pushing for completion asap and we're also tired of waiting (the seller solicitor has been particularly incompetent) but we also don't want to be taken for fools and miss this chance to free ourselves from ground rent.

[sgclacy]

An existing lease being extended can carry the same ground rent terms for the remaining years of the old lease and a peppercorn for the years that are added

it would also appear under the act that a lease can be VARIED to increase the ground rent after 30 June 2022 and the following day surrendered and extended and this heightened ground rent terms can apply during the remaining years of the old lease with a peppercorn going forward

in a group company selling a flat a new lease could be created with a ground rent and sold to a subsidiary for a nil premium on day one and the following day the subsidiary sells the lease to the buyer of the flat for normal consideration with that ground rent in place - see the definition of a regulated lease within the act

i Illustrate these points to show that it appears not to be a masterpiece of legislation and has been rushed through to deal with the hysteria that has broken out - evidence of which is the idea that a rent of £250 is seen as hefty

[AndrewDod]

I wish that was the case, unfortunately our freeholder has already made it clear that the 2 leaseholders will have to pay for everything to do with the maintenance of the building, despite the fact he himself has done the bare minimum and we will have to pay for expensive building insurance because of this. In London protesting is useless, ground rents are only for the pockets of freeholders.

That is entirely irrelevant. Under 99.99999% of leases "leaseholders will have to pay for everything to do with the maintenance of the building".

[Gordon999]

Ahhh that's what I feared. The freeholder is pushing for completion asap and we're also tired of waiting (the seller solicitor has been particularly incompetent) but we also don't want to be taken for fools and miss this chance to free ourselves from ground rent.

If the lease commences before 30 Jun 2022, the leaseholder agrees to pay annual ground rent for 125 years under the lease plus paying cost for lease extension after the lease falls below 90 years etc .

However if the lease commences after 30 Jun 2022 , the LR(GR)A 2022 requires the lease to state "one peppercorn ground rent". This means no ground rent will be demanded. Both conveyancing solicitors must know this.

The seller's solicitor acts legally for the "seller's interest" but he/she cannot skate around before the new law LR(GR)A2022 commences, and cannot compel you to accept a lease with ground rent liability.

Your solicitor acts for the buyer's interest and must guard your interest.

[AndrewDod]

The seller's solicitor acts legally for the "seller's interest" but he/she cannot skate around before the new law LR(GR)A2022 commences, and cannot compel you to accept a lease with ground rent liability.

Yes but nor is the seller compelled to complete beyond a date when the value of the lease would rise. Most likely the seller will pull out if completion is delayed, and you will have a price negotiation.

[Macromia]

Your solicitor should explain this new law coming into force on 30 Jun 2022 to you. So don't exchange sale contracts until after this date has passed.

The date that contracts are exchanged in this sale is irrelevant unless the initial period for which the lease is granted commences on, or after, 30th June this year.
If this really is the first grant of the lease the freeholder might need to ensure that the lease term commences prior to the end of June, but they can probably find a way to grant the lease to themselves so that it does commence before then.

Can anybody explain this bit in layman's terms?
(1)(c) "it is granted on or after the relevant commencement day, ]otherwise than in pursuance of a contract made before that day"

This would mean that ground rent can still be included in a lease that begins after 30th June 2022 IF a contract agreeing to lease terms that include ground rent is signed before that date.

I wish that was the case, unfortunately our freeholder has already made it clear that the 2 leaseholders will have to pay for everything to do with the maintenance of the building, despite the fact he himself has done the bare minimum and we will have to pay for expensive building insurance because of this. In London protesting is useless, ground rents are only for the pockets of freeholders.

If the building is in a poor state of repair, the price that you have offered for the lease should reflect the amount that you will have to pay out in order to bring it up to a decent standard (with the total cost quite likely be more than you would have to pay if you owned the property as a freehold). If you cannot afford both the purchase price and the likely cost of maintenance you should not proceed with the purchase.

[sgclacy]

The above post clearly shows that you are considering the terms of the lease that are being put in front of you and as a consequence you will eventually pay a price which reflects the negative and positive issues of the proposal.

This illustrates again why there should be nothing wrong with a ground rent of £250 per annum which is either fixed, rises in line with the RPI or average earnings or has modest doubling provision. The terms our very much part of the overall consideration the developer/freeholder seeks, in the case the £250 per annum is one of the elements that make up the overall purchase price.

Therefore, you can appreciate why there would be an outcry if ground rents at whatever level they are, which rise in line with those I have outlined above, should be capped.

[Gordon999]

1stFlat22,

Since the LR(GR) Act 2022 commences on 30 Jun 2022, your conveyancing solicitor would not ask you to sign a lease which requires payment of ground rent, less than 2 months before the Act commences on 30Jun 2022.