The Leasehold Reform (Ground Rent) Act 2022

Written by Sarah Khamis Carson

The Leasehold Reform (Ground Rent) Act 2022 (the Act) received Royal Assent on 8 February 2022 and will come into force on 30 June 2022. For retirement home leases, the ground rent provisions in the Act will not apply until at least 1 April 2023.

The Act will apply to properties in England and Wales and once in force, ground rent payable to landlords under any new residential leases will be reduced to an annual rent of one peppercorn (i.e. nil consideration). This new ground rent provision will apply to new leases of houses and flats that are subject to a premium and granted for a term of more than 21 years.

Non-compliance with the Act

If a landlord takes rent payment from a leaseholder under a lease that falls within the Act, then financial penalties will apply. The penalties may be enforced by the trading standard authorities in England and Wales and fines of between £5,000 – £30,000 may be imposed. Leaseholders also have a right to apply to the First Tier Tribunal to recover rent payments.

Are there any exceptions?

New ground rent restrictions will not apply to business leases, community housing leases, or home finance plan leases.

As to shared ownership leases, presuming the lease reserves separate rents for the landlord and tenant for their respective shares, the landlord is entitled to demand rent on his share of the property. The rent in respect of the leaseholder’s share of the property is a peppercorn.

The Act will have no bearing on statutory lease extensions. In any event, in the case of a lease extension for a flat, the ground rent will be reduced to a peppercorn in accordance with the Leasehold Reform Housing and Urban Development Act 1993.

Will the Act affect existing leases?

No, the Act is not retrospective and will only apply to new leases granted once the Act is in force. However, it is expected that the government will impose further legislation to protect leaseholders, and this might include capping ground rents in existing leases.

Once the Act is in force, landlords will no doubt take care when it comes to varying terms of existing leases. If the demise of the property in the lease is changed in any way, then this is actually a surrender and re-grant of the lease. This means that the lease would qualify as a new lease under the Act and the new rent would become a peppercorn. This is a clear disadvantage to landlords.

A similar rule applies to voluntary lease extensions. The extended lease will qualify as a new lease. However, ground rent will only be reduced to a peppercorn once the residue of the term of the existing lease come to an end e.g. if the lease is extended by 90 years, a nil ground rent will only apply to the final 90 years of the lease term.

The statutory lease extension route, whereby rent is immediately reduced to a peppercorn on completion of the new lease, will still be available (so long as certain conditions are satisfied). For further information, please see our FAQsclick here to read more.

 

If you would like to speak to someone about these changes, get in touch with Sarah Khamis Carson by calling 01202 421111 or emailing S.KhamisCarson@hklaw.uk.

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