How the Renters’ Rights Act 2025 has ended the AST trap for leaseholders 

Buried in the Housing Act 1988 was a legal quirk with nothing to do with short-term renting, and everything to do with the security of people who owned their homes on long leases. For years it caused real difficulties for buyers, sellers and mortgage lenders. Quietly, in the background, without most of those affected ever knowing it was there. Section 31 of the Renters’ Rights Act 2025 has now closed it. What follows is an explanation of what the trap was, why it mattered, and what the change means for leaseholders today.

What was the AST trap?

An Assured Shorthold Tenancy (AST) is what most people picture when they think of a private rental. A tenant, a landlord, a fixed term, and a set of rules about how and when the landlord can end the arrangement, all governed by the Housing Act 1988. It is a framework designed for short-term occupation. The problem was that certain long residential leases, the kind that come with buying a leasehold flat or house, could end up in the same legal box.

Under the Housing Act 1988 as originally drafted, a long lease could be treated as an AST if just two conditions were met: that the annual ground rent exceeded £250 (or £1,000 in Greater London), and that the property was the leaseholder’s only or main home. That was all it took. The lease did not need to look like a rental agreement. The landlord did not need to have intended it to work as one. Cross those two thresholds and the law could treat a 125-year lease on a flat someone had bought and was living in as though it were a short-term tenancy. The name ‘AST trap’ was apt.

The consequences were not theoretical. Where a lease qualified as an AST, the freeholder could invoke Ground 8 of Schedule 2 to the Housing Act 1988 to seek possession. Ground 8 is mandatory. Once the court is satisfied that ground rent arrears have exceeded three months, it has no discretion to refuse the possession order. None at all. A homeowner who had fallen behind on ground rent, even without realising the lease was caught by the AST regime, could find themselves facing eviction proceedings under rules designed for renters.

Why it mattered beyond the risk of possession

Actual possession proceedings were uncommon. But the structural problem the trap created was anything but. Mortgage lenders understood the risk clearly: if a freeholder used the AST regime to obtain possession, the lender lost the property securing their loan. Worse, the Housing Act 1988 placed no obligation on the freeholder to notify the lender when bringing possession proceedings. A lender could find out far too late to do anything about it.

Lenders responded by becoming cautious, sometimes very cautious, about lending on leasehold properties where the ground rent exceeded the relevant threshold. For buyers and sellers, this translated into delay, added cost, and uncertainty. Conveyancers had to address the issue as a matter of course, typically by obtaining a deed of variation from the freeholder confirming they would not rely on the AST regime, or an indemnity insurance policy to protect the lender’s position. Neither was a clean solution. Both took time and cost money. And in some cases, lenders simply declined to proceed at all.

Shared ownership leases were caught too. The combination of ground rent above the threshold and occupation as a principal home could trigger the same problem, and a particular frustration for buyers already contending with the complexities that shared ownership brings.

What Section 31 of the Renters’ Rights Act 2025 does

Section 31 of the Renters’ Rights Act 2025 came into force on 27th December 2025, two months after Royal Assent on 27 October 2025. It works by amending Schedule 1 to the Housing Act 1988, inserting a new paragraph that removes fixed-term tenancies of more than 21 years from the definition of ‘assured tenancy’ altogether. The change applies to both existing and new leases, with no carve-outs based on ground rent level.

Put plainly, a long residential lease cannot now be treated as an AST, whatever the ground rent says. The freeholder has lost the ability to use Section 8 of the Housing Act 1988 to pursue possession for ground rent arrears. What applies instead are the ordinary rules of leasehold forfeiture, which require a court order before a lease can be forfeited, and give the court meaningful discretion to grant relief to a leaseholder in arrears.

There is also a transitional provision worth noting. Existing leases with a term of between 7 and 21 years, granted before 27th October 2025 or during the short window between Royal Assent and the provision coming into force on 27th December 2025, are also excluded from the assured tenancy definition. This closes off the argument that shorter pre-existing leases of this kind might somehow remain exposed.

What this means for buyers, sellers and those remortgaging

For anyone involved in a leasehold transaction, the practical effect should be straightforward. Solicitors no longer need to check whether the ground rent crosses the relevant threshold and then work out how to protect the lender’s position. AST status simply does not arise. Deeds of variation and indemnity insurance policies taken out specifically to address this risk are no longer needed on new transactions.

Sellers who have previously been told their property has a ground rent problem will want to understand this clearly. A ground rent that caused a lender to pause, or that required a deed of variation or indemnity policy in a previous transaction, no longer presents the same obstacle. Ground rent remains relevant in other respects under leasehold law; it did not become irrelevant overnight. But the specific AST-related risk that complicated so many transactions has gone.

The same is true for remortgaging. Where indemnity insurance or a deed of variation was obtained to satisfy a previous lender, that was always a workaround, not a fix. The legal problem itself has now been removed at source.

Other significant changes under the Renters’ Rights Act 2025

The end of the AST trap is the change with the most direct relevance to homeowners and leaseholders, but the Renters’ Rights Act 2025 goes considerably further than that. From 1st May 2026, the assured shorthold tenancy regime is abolished for the rental market entirely. All existing and new assured tenancies become periodic assured tenancies: open-ended, rolling month to month, with no fixed end date. Section 21 ‘no fault’ evictions go at the same time. Landlords who want possession will need to establish one of the reformed grounds under Section 8 of the Housing Act 1988.

These are the most significant changes to the private rented sector in England in more than thirty years. How they play out in practice, for landlords, tenants, letting agents and the courts, will become clearer over time. If you have questions about what the 1st May 2026 changes mean for your specific situation, early advice is sensible.

How Newmanor Law can help

Leasehold law sits at the intersection of several overlapping statutory frameworks, and a change in one area can have consequences that are not always obvious at first glance. Whether you are buying or selling a leasehold property, remortgaging, or trying to understand what recent legislative changes mean for your lease, our team can advise you clearly and without unnecessary jargon.

We act for homeowners and leaseholders across a range of property matters and have a detailed understanding of how the Renters’ Rights Act 2025 affects the leasehold landscape. If you’d like to talk through your position, please get in touch.