The Leasehold Reform (Ground Rent) Act 2022 ("the Act") received Royal Assent on 8 February 2022 but has not yet substantively come into force. It is described by the Government as "part of the most significant changes to property law in a generation", and further residential leasehold reform is likely to follow.
What will the Act do?
Once fully in force, the Act will limit the ground rent that can be charged on most new residential long leases of flats and houses, and on the extended term of any lease extension, to a peppercorn per year. It also prohibits the charging of administration charges for peppercorn rents.
When will the Act come into force?
The implementation date for the main provisions is 30 June 2022.
Some leases are excepted from the Act:
- Business leases
- Statutory lease extensions under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993
- Community Housing leases: where the landlord is a community land trust or if the lease is in a building controlled or managed by a co-operative society
- Home finance plan leases: 'rent to buy' arrangements where a finance provider purchases an interest in a property and another is obligated to purchase this interest
- Shared ownership leases: the landlord can, however, continue to charge rent for its retained share of the property.
The Act will not come into force for retirement home leases before 1 April 2023, a retirement home being a property that may only be occupied by persons with a minimum age of 55.
Can a freeholder increase the ground rent in consideration of another change to the lease?
Yes, provided this is by way of deed of variation only. Where an extension of the term or demise triggers a surrender and re-grant, the new lease will be caught by the provisions of the Act and any ground rent must be limited to a peppercorn.
What are the consequences of failing to comply with the Act?
If a new lease or lease extension is granted with an escalated ground rent or rent review provision, financial penalties will apply.
Crucially, any person can be liable to be fined under the Act if the enforcement authority (being every local weights and measures authority or a district council) is satisfied beyond reasonable doubt that that person has breached the Act. Liable persons include a landlord who has subsequently ceased to be a landlord. These cases will be dealt with via the enforcement authority and the First-Tier Tribunal ("the FTT") with a right of reply and a right of appeal.
Fines are subject to a statutory minimum of £500 and a statutory maximum of £30,000. Additionally, the enforcement authorities have the ability to recover any rent prohibited by the Act that has been paid by a leaseholder to a landlord or to any person acting on behalf of a landlord, plus interest.
The leaseholder is also able to recover any rent prohibited by the Act that has been paid by them via application to the FTT together with interest.
What about ground rent in existing leases?
The Act does not apply, however we understand that there is parliamentary pressure for the Government to introduce a similar bill to cover existing leases and the ground rent and rent review provisions in them.
In addition, the Government has re-opened the consultation on changes to the enfranchisement and lease extension legislation. Prospective changes may include enabling leaseholders to extend their leases by an additional 990 years and, for those with very long leases, buy out the ground rent without having to extend the lease term. The Government is also looking to reduce premiums and costs payable by leaseholders.
Private sector residential housing has been the subject of many consultations and reforms in recent years. With the Government under pressure to take action over lack of affordable housing and perceived unfairness, expect more legislation that will challenge established market practice in this area.