Residential Property: Renters’ Rights Act 2025 – welcome news for Leasehold owners

Prior to enaction of the Renters’ Rights Act 2025 on 27th December 2025, there was complicated legislation which provided that where a Lease met certain criteria it was possible for it to be treated as an Assured Shorthold Tenancy (‘AST’) rather than a legal Lease. This issue is known as the ‘AST Trap’.

A lease would constitute an AST where, and for so long as, it satisfied all of the following conditions:-

• The tenant is an individual (not a company or organisation).
• The property is the tenant’s main or only home.
• The rent is between £250 and £100,000 per year (or £1,000 and £100,000 per year in London).
• The tenancy started on or after 28 February 1997.
• The landlord does not live in the same property.

The issue created by the legislation was that Landlords of ASTs have the legal right to seek possession during the lease term if they can prove a specified ground for repossession, which in the case of Leasehold properties was most notably Ground 8 of Housing Act 1988, which applied where the tenant is in a certain level of rent arrears.

This was a genuine concern for long leaseholders and their mortgage lenders, particularly as ground rents in modern leases have increased substantially. Long leases are often acquired for a premium and are valuable assets, forming the basis of mortgage security. If a long lease qualifies as an AST and the tenant fails to pay ground rent, a Landlord could potentially terminate the lease and take possession, without compensating the leaseholder or any mortgagee.

The issue received significant media attention, particularly where modern long leases included aggressive ground rent escalation clauses. In response, a vast number of mortgage lenders refused to lend on such leases, causing real headaches for owners of Leasehold properties which fell under the provisions.

This led to many sellers and buyers of a Leasehold property which qualified as an AST having to go to significant additional expense and time delays whilst a Deed of Variation was entered into which varied the property’s Lease to limit the ground rent to no more than £250.00 per annum with no provisions for rent increases. In the vast majority of cases, where a purchaser of a leasehold property had a mortgage, it was a requirement of the lender to enter into a Deed of Variation before the lender would proceed, leading to significant additional costs and delays in a transaction.

What’s New? The Renters’ Rights Act 2025

However, the Renters’ Rights Act 2025 was enacted on 27th December 2025. Section 31(1) of that Act provides that any Lease that has been granted for more than 21 years can no longer be an assured tenancy and therefore as long leases cannot be assured tenancies they also cannot become ASTs.

This is very welcome news for leaseholders and conveyancers and marks the end of a period of uncertainty and additional expense for leaseholders, and for conveyancers a welcome relief from many hours spent negotiating Deeds of Variation and indemnity policies with lenders and solicitors.

We are here to help

We can provide easy to understand advice to Landlords and Tenants alike. Please get in touch if you would like an appointment to discuss your lease requirements by calling on 01761 414646, email us on enquiries@th-law.co.uk or contact us through our website.