On Tuesday 8 February 2022, the Leasehold Reform (Ground Rent) Bill received Royal assent and is now law. The aim of the Act is to make leasehold ownership fairer and more affordable for leaseholders. All Landlords granting new residential leases in England and Wales will now be bound by the terms of the Act.
What are the changes?
Ground rent payable on leasehold properties will be restricted to a peppercorn (i.e., non-monetary) in future leases and rent administration charges are banned in most residential leases with a term longer than 21 years.
Exceptions to the rules
Business leases, statutory lease extensions of both houses and flats, community housing leases and home finance plan leases will not be affected by the Act. It had been anticipated that retirement housing (dwellings that can only be occupied by people aged 55 years and older) would be exempt but this is not the case. However, there will be a slight delay in the Act’s effect on such property with only retirement housing leases granted after 1 April 2023 being caught by the Act.
Can the Act be applied retrospectively?
The Act will not apply to current leases and thus there is no benefit to holders of existing leases with high or more reasonable ground rent obligations. Any agreements for leases entered into prior to the Act being passed will be unaffected and a monetary ground rent may be demanded. However, Landlords need to be careful not to inadvertently surrender and re-grant existing leases under which they may collect ground rents. Ground rent will not be payable under the re-granted lease once the provisions of the Act are in force and penalties will apply.
Penalties for Landlords
Landlords who seek to demand ground rent after the Act has been passed will be liable to fines of between £500 and £30,000. Additionally, such Landlords will be required to repay any unlawfully collected ground rents plus interest. Leaseholders will also be able to apply for a prohibited ground rent to be replaced with a peppercorn rent.
Enforcement action can be taken against past and current Landlords, as well as people acting on their behalf. If you have any questions about ground rents, please contact us on the usual number and we will be able to answer any questions you may have.