Ground-breaking change: The Leasehold Reform (Ground Rent) Act 2022

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Ground-breaking change: The Leasehold Reform (Ground Rent) Act 2022

Author: Stephanie Pugh

Key Contact: Liz Gibbons

The Leasehold Reform (Ground Rent) Act 2022 (“the Act”) is said to be the starting point in a significant overhaul by the government of the heavily criticised leasehold system. The Leasehold Reform (Ground Rent) Act Bill received Royal Assent on 8 February 2022 with its provisions set to become enforceable from 30 June 2022.  Leasehold minister Lord Stephen Greenhalgh has branded the change as an ‘important milestone’ in ‘making the dream of homeownership a more affordable reality.’

In a nutshell, the Act faces the issue of unreasonable ground rent head on, banning ground rent charges on the majority of new residential leases in England and Wales. Under the Act, ground rent will be limited to a ‘peppercorn rent’ which, in contractual terms, is a token of consideration with no financial value.

The Act comes as a welcome change in an area heavily criticised as open to the abuse and extortion by landlords of freehold properties, and a heavy restriction to those struggling to get on the property ladder. The changes have become all the more necessary in recent years as long-leasehold ownership has increased in popularity in new build properties and flats, whichoften require further maintenance obligations to the landlord which is not required by freehold ownership.

The logistics: Uncovered Ground

The Act will not apply retrospectively (unless in the case of a lease surrendered and regranted), and tenancies existing before the enforcement date can continue to impose ground rent charges.  However, up until the provisions become legally enforceable, the Government are encouraging landlords of new leases to reduce ground rent to zero and encouraging tenants, respectively, to speak to their landlord and negotiate a ground rent that reflect the changes.

The Act is likely to have little effect on developers, as the changes here are somewhat making official what is now considered standard practice in certain areas. Developers particularly have been using conventional ground rents for some time.

Furthermore, the Act in its current form will unlikely shake up the majority of commercial tenancies, as business tenancies are excepted from the Act, sicking to the traditional ‘at arm’s length’ involvement by the Government and the Courts in commercial contracts. There are other exceptions to the Act, such as community housing leases, however it is important to note this exception does not reach leases granted social landlords and registered providers of social housing.

Enforcement: Grounds for a Claim

Following legal enforcement, the provisions will have stringent repercussions for landlords where a ground rent payment is demanded and not returned within 28 days of receiving such. Contraventions to the Act will be a civil offence and carry a fine of between £500 and £30,000. Enforcement and its penalties apply to landlords, current and past, as well as any persons acting on their behalf. This is coupled with the right of a refund granted to the tenant in these circumstances, inclusive of interest.

The enforcement of the Act is wide ranging. If you are interested in the changes to the system as discussed, or think they may apply to you, we recommend seeking legal advice. If you wish to speak to our Real Estate team about the above, please contact Liz Gibbons.

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