It was confirmed in The Queen’s Speech on 11th May that the government will introduce a Leasehold Reform (Ground Rent) Bill to ensure that “leaseholders of new, long residential leases cannot be charged a financial ground rent for no tangible service”.
The Government is legislating to require that – for the first time – ground rents in residential long (i.e. for a term exceeding 21 years) leases will have no financial demand. These will be set in law as a ‘peppercorn rent’ level, meaning that nothing more than a literal peppercorn can be sought from leaseholders.
It is important to note that the new legislation will not have retrospective effect – that is, the ground rent prohibition will only apply to leases granted on or after the relevant commencement day for the new legislation, otherwise than in pursuance of a contract made before that day.
Enforcement (in the event that a landlord attempts to charge a prohibited ground rent) will be by way of a civil penalty regime, including fines of up to £5,000 for the landlord and the requirement for a landlord to repay to the tenant any prohibited rent received, plus interest.
There will be limited exemptions, including:
- Some parts of the community-led housing sector (i.e. where the landlord is a community land trust, or the building is controlled or managed by a co-operative society) so they can retain the right to levy ground rent to maintain their ability to further promote community activities
- Certain financial products which depend on leases where rent replaces interest bearing mortgage payments, such as those drawn on by the older population for a type of equity release and the growing Islamic finance sector
- Business leases, to allow people who need to live in the same premises as their workplace to continue to do this and agree with their freeholder the most beneficial and appropriate terms
- Statutory lease extensions of leasehold houses and flats
The Bill was formally introduced for its first reading in the House of Lords on 12th May, but the exact timetable as to when the Bill is likely to receive Royal Assent and become law is currently unclear. The Bill does however state that “The day appointed for the coming into force of this Act in relation to leases of retirement homes (i.e. occupiers 55 or over) must be no earlier than 1 April 2023.
For more information, please contact Jonathan Corris, Dan Moan, or Dominic Bauers in our Real Estate & Projects team.
