© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
The Freehold and Leasehold Reform Act 2024 (LFRA 2024) has put us on the brink of a period of significant change which will affect all parts of the property sector, including legal matters, property management and property insurance. While the proposed removal of marriage value and the proposed introduction of 990-year lease extensions have grabbed most of the spotlight, a lesser-known but equally significant provision has emerged: a new leasehold right designed to address onerous ground rents without extending the lease.
"The introduction of this new right represents a new tool available to leaseholders affected by doubling ground rents or those that rise with the Retail Prices Index too frequently and are therefore considered onerous," says Ricky Coleman of Peppercorn Law. "It provides a targeted ability for those burdened by escalating ground rents, without requiring them to extend their lease, as is currently the case. This is a welcome development that will bring much-needed relief those with very long leases that are struggling to sell or remortgage due to a problematic ground rent."
At its heart, this new right offers leaseholders an alternative to the traditional Section 42 process. It provides the right to eliminate onerous ground rents by replacing them with a nominal peppercorn rent. This provision is particularly relevant for leaseholders who find themselves with long lease terms but escalating ground rent obligations. In shared ownership properties, this right applies specifically to the tenant's share, leaving the landlord's portion unaffected.
This new right is being introduced to address the concerns of leaseholders facing various ground rent scenarios. Examples include those with:
999-year leases with doubling ground rents that will exceed 0.1% of the flats value.
250-year leases with ground rents linked to the Retail Price Index (RPI) increasing say every 10 years or more frequently.
999-year leases where ground rent escalates as a percentage of property value upon each sale, taking the annual ground rent up to an uncomfortable level as property values continue to rise.
Essentially, any leaseholder with a long lease subject to an unsustainable ground rent burden can potentially benefit from this provision.
To exercise this new right, leaseholders must meet specific criteria, distinct from those required for lease extensions. These include:
Holding a qualifying lease of a flat or house (generally, a residential lease of at least 21 years from its commencement).
Having at least 150 years remaining on the lease.
Not holding a community housing lease or a home finance plan lease.
The leaseholder initiates the process by serving a rent variation notice on the freeholder and any other affected parties, such as intermediate landlords. This notice must:
Clearly state the leaseholder's intention to replace the ground rent with a peppercorn rent.
Propose a premium to be paid to the freeholder in exchange for this change (akin to the s.42 lease extension process).
Importantly, this notice can be assigned with the property, allowing sellers to proceed with transactions while the rent variation process is underway.
The freeholder must respond with a counter notice, either accepting or rejecting the leaseholder's claim. If rejecting, the freeholder must provide specific grounds for objection. The leaseholder can set the response time between 2 and 6 months. In cases of disagreement regarding the right to claim a peppercorn rent, the premium amount, or necessary lease variations, either party can seek a determination from the First-tier Property Tribunal, much in the same way that the s.42 lease extension process works and so property professionals will be familiar with aspects of this new procedure.
While the LFRA 2024 provides detailed provisions for this new right and whilst the machinery of the First-tier Tribunal is already in place and used to dealing with valuation matters, it is not yet in effect. Further legislation is required to activate these provisions and to this end, we are in the hands of the government; however so far in 2025, there have been changes to leasehold already, with the removal of the two year rule for lease extensions and the removal of landlords costs under the right to manage process. The signs are that we may see the introduction of this new process sooner rather than later.
Ricky Coleman is a leasehold solicitor and writer at Peppercorn law