After years of discussion, the statutory provisions concerning ground rent in long residential leases are set to change on 30th June 2022, resulting in landlords no longer being able to charge ground rent in specified types of new leases, save for some exceptions.
The Leasehold Reform (Ground Rent) Act 2022 (the “Act”) will apply to a “Regulated Lease”, that is a lease where all of the following apply:
- any long lease of over 21 years;
- of a single dwelling;
- granted for a premium (which is separate to the rent);
- granted on or after 30th June 2022 (unless pursuant to an agreement for lease exchanged prior to 30th June 2022); and
- which is not an “Excepted Lease” (see below).
The Act will limit the chargeable ground rent payable under a Regulated Lease to one peppercorn per year (albeit with some limited exceptions).
The Act will also prohibit landlords from charging any administration fees in relation to peppercorn rents.
Excepted Leases
However, there are some leases (“Excepted Leases”) which are not deemed to be Regulated Leases:
- Business leases;
- Statutory lease extensions (as the ground rent for these is covered by other legislation);
- Community housing leases; and
- Home finance plan leases.
If you need more information on these exceptions, please do not hesitate to contact us.
Voluntary Lease Extensions
In relation to voluntary lease extensions, when the original “pre-Act” lease granted to the tenant is to be extended (and would otherwise be caught by the provisions of the Act), the Act states that any ground rent payable under the “pre-Act” lease can continue being charged for the unexpired term of the “pre-Act” lease (known as the “excepted period”). Following expiry of the term of the “pre-Act” lease (known as the “regulated period”), the ground rent is reduced to a peppercorn per annum.
However, the parties can always agree to a peppercorn ground rent for the entirety of the voluntary lease extension.
Shared Ownership Leases
With regards to shared ownership leases, the provisions of the Act only apply to any ground rent payable in respect of the tenant’s share of equity in the property. The “Specified Rent” payable by the shared ownership tenant in respect of the landlord’s share of equity is not affected by the Act.
Retirement Home Leases
The Act does not yet apply to retirement home leases (leases which require the tenant to be at least 55 years old) – the earliest that the Act can apply to such leases is from 1st April 2023.
Breaches
A landlord of a Regulated Lease (or their agents) cannot ask for payment of a “prohibited rent” (i.e. more than a peppercorn per annum), or if a prohibited rent is paid by accident, this must be refunded within 28 days of receipt. These requirements apply even if the landlord has sold the property, and applies to any tenant within the property (or their agents and guarantors).
Any landlord breaching the provisions of the Act can face fines between £500 to £30,000 per lease, to be enforced by trading standard authorities or District Councils. These trading standard authorities can also order repayment of the rent, plus interest or the tenants themselves can apply for an order from the First-tier Tribunal to recover any such rents.
The Act is one act of a programme of legislation that the Government is currently pursuing in their reform of leasehold legislation, including potential reform to leasehold enfranchisement and lease extensions.
The Government has just published guidance on these changes which can be found here.
If you have any queries on to how this affects you and/or any properties you own, please do not hesitate to contact Katy Holmes or Dominic Bauers.
Devonshires has taken all reasonable precautions to ensure that information contained in this article is materially accurate however this article is not intended to be legally comprehensive and therefore no action should be taken on matters covered in this article without taking full legal advice.
