Closing the loophole: how the Renters’ Rights Act 2025 resolved the AST classification problem

For years, the ‘AST trap’ has been one of the most persistent and technical challenges in English property law. It created unexpected risks for leaseholders and lenders often slowing transactions, increasing costs, and in some cases exposing homeowners to the possibility of losing their property over small ground rent arrears.

With the Renters’ Rights Act 2025 now in force, this longstanding issue has finally been resolved. Below, we explain what the “trap” was, how it arose, why it caused concern and how the new legislation provides lasting protection for leaseholders and lenders alike.

What was the AST Trap?

Under the Housing Act 1988 (the 1988 Act), a long lease (typically 21 years or more) could be classified as an Assured Shorthold Tenancy (AST) if the annual ground rent exceeded:

• £250 per year (outside Greater London), or
• £1,000 per year (within Greater London)

These thresholds, originally set in 1988, did not anticipate modern rent review provisions and/or the steep escalating ground rent levels in some leases. Whilst the introduction of the Leasehold Reform (Ground Rent) Act 2022 capped ground rent for new leases at zero, this did not resolve the issue for long leases that had already been granted, which were still subject to the loophole.

As a result, many long leases unintentionally fell within the AST regime and the thresholds meant that landlords could rely on Section 8, Ground 8 of the 1988 Act – a mandatory possession ground – to evict leaseholders who fell into three months’ worth of ground rent arrears.  If the conditions were met, the Courts had no discretion but to grant possession, and critically, lenders did not need to be notified.  This was the heart of the AST trap: leaseholders who had purchased what they believed to be secure long-term homes faced mandatory eviction if they fell into ground rent arrears, with none of the protections that would normally apply to long leaseholders.

In short, a technicality designed for ASTs and short-term tenants was being applied to long-term homeowners.

Why did this become such a problem?

The issue emerged largely because ground rents in modern leases have increased dramatically compared to the nominal charges found in older leases. Many developers introduced escalating ground rent clauses—sometimes doubling every ten years. As a result, more leases began to exceed the statutory thresholds and inadvertently fell within the AST framework.

Although the practical risk of eviction was low for leaseholders who paid their ground rent on time, the technical risk created substantial complications in property transactions:

• Leaseholders feared losing their homes through a mandatory possession order.
• Lenders worried about losing security over mortgaged properties without notice and viewed the leases as defective.
• Conveyancers frequently had to negotiate variations to leases or obtain indemnity insurance, causing delay and additional costs for buyers and sellers.

By 2025, the problem had become widely recognised by policymakers, practitioners, and industry bodies. Buyers faced unexpected costs, delays and uncertainty about mortgage approval. Sellers experienced reduced buyer confidence, lower valuations, and an increased risk of sales collapsing.

How has the Renters' Rights Act 2025 Ended the AST Trap?

The Renters’ Rights Act 2025 which received Royal Assent on 27 October 2025 abolishes ASTs entirely and reforms the assured tenancy regime.

In practical terms:

• Long leases (those granted for more than 21 years) can no longer fall into the AST regime. The mechanism by which long leases became ASTs in the first place has therefore been removed and so landlords can no longer use Section 8, Ground 8 of the Act for ground rent possession proceedings
• The ground rent level is now irrelevant in this context — even if it exceeds £250 or £1,000, the lease cannot be classified as an AST.

The reform provides a simple and effective solution, properly distinguishing long-term homeownership from short-term renting.

When did it become Effective?

The AST trap was formally abolished on 27 December 2025, two months after the Act received Royal Assent. From that date, any long lease regardless of when it was granted has been entirely excluded from the assured tenancy framework.

What is the Impact of ending the AST Trap?

Leaseholders: Most importantly, long leaseholders can no longer be evicted under the mandatory Ground 8 possession ground, restoring the security of tenure they reasonably expected when they purchased their homes.  In addition, indemnity insurance or costly deeds of variation are no longer required to deal with this issue which reduces costs on the sale of a property.

Lenders: Mortgage lenders benefit from increased certainty of security. They no longer face the risk of a lease being forfeited without notification or compensation due to unpaid ground rent. This means improved access to mortgage finance for buyers and greater confidence in the security of loans.

Conveyancers:  These changes remove the need for conveyancers to raise enquiries and report on this issue to buyers and lenders and spend time negotiating ways to mitigate this risk which means transactions are simplified and delays reduced. 

In practice, the implementation of the Renters’ Rights Act will have a limited impact on many long leases that were subject to this loophole. Any lease that fell foul to this technicality, and has been transferred, would have had the issue rectified by either varying the lease to reduce the rent, usually to a peppercorn, or obtaining an indemnity policy to protect against the risk.

Despite this, the end of the AST trap brings lasting clarity and fairness to the leasehold system. The Renters’ Rights Act 2025 restores the proper legal distinction between long‑term leaseholders and short‑term tenants, reinforcing stability, reducing transactional risk, and supporting a more efficient property market overall.

further information 

For more information on any of the issues mentioned in this blog, please contact our Real Estate team. 

About the authors 

Rachel is a Senior Associate in the Real Estate team specialising in residential purchases and sales.

Katie joined the firm in 2024 and is a Senior Paralegal in our Real Estate team.