The Latest on the Leasehold Reform

The Leasehold Reform (Ground Rent) Act 2022 (“the Act”) received Royal Assent on 7th February 2022 and forms a much-awaited part of the government’s wider reform of leasehold law.

The Act will apply to ground rent provisions in new residential leases for a term exceeding 21 years, granted on or after the date that the Act comes fully into force. Ground rent is a payment found in the lease which is made by a leaseholder to a freeholder of a property or the superior leasehold title owner.

The Act will not apply to leases for business purposes, leases granted under the statutory lease extension procedure, community housing leases and home finance plan leases, nor will it apply retrospectively.

When all provisions of the Act are in force, Landlords under ‘regulated’ leases will not be able to charge tenants in excess of a peppercorn in annual ground rent (essentially zero).

If a Landlord either asks the tenant for payment of more than this or has received payment and fails to refund it to the tenant within 28 days of receipt, this will be a ‘prohibited’ rent.

The Act does not apply to other charges found in Leases, for example service charges, insurance rent etc.

If a Landlord does request, or has received and fails to return a prohibited ground rent, an enforcement authority can:

1. Impose a financial penalty between £500 and £30,000 if they are satisfied beyond reasonable doubt that a breach has occurred

2. Order the Landlord to refund the payment to the tenant. They will also have the power to order interest to be payable on this amount

The tenant can apply to the tribunal for a ‘recovery order’ which would order the person specified in the application to pay the amount of ground rent that the tenant had not been refunded.

Either the Landlord or Tenant can apply to the tribunal for a declaration as to the terms of the lease. Practically, this may mean that the tribunal can replace terms of leases which state ground rent is payable, to peppercorn where appropriate.

In reality, this marks the end of ground rent charges under new residential long leases and Landlords need to be alive to this to avoid being penalised when the legislation comes into force.

We await full regulations which will structure the implementation and commencement of the Act, but if you intend to grant new leases, or are a tenant being granted a new lease, Herrington Carmichael LLP would be happy to assist you with further information as to the impact of this new legislation.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.