It has been announced that the Leasehold Reform (Ground Rent) Act 2022 will come into force on 30 June 2022.
The new law will be part of a wave of leasehold reforms, the most significant we have seen for almost 30 years.
The 2022 Act will prevent a landlord from recovering a ground rent on any new leases granted or entered into after the commencement date.
The 2022 Act will not apply retrospectively and will not apply to leases entered into before the 30th June 2022.
Who will it apply to?
The 2022 Act will apply to regulated leases. These are essentially residential leases granted for a term in excess of 21 years and it is granted for a premium. This will also include a deemed surrender and re-grant where a lease has been varied or the demise has been extended. Lease variations will also be covered where there is no premium payable.
Who will it not apply to?
The legislation will not apply to excepted leases which include business leases, statutory lease extensions (where a leaseholder of a flat or house exercises a legal right to a lease extension), community housing leases and home finance leases.
What does it mean?
The landlord under a regulated lease will be prohibited from recovering ground rent which is not a peppercorn rent. This means the regulated lease must not contain a provision for the payment of a ground rent. It is important to note that this will apply to previous landlords and previous tenants.
What are the consequences of a failure to comply?
Where a landlord has recovered ground rent and not paid it back within 28 days they may be liable to pay a fine up to £30,000.
Practical examples:
Where a leaseholder of a regulated lease enters into an agreement to extend their demise this will be a surrender and re-grant for the purposes of the 2022 Act. Therefore, only a peppercorn rent will be recoverable.
Where a leaseholder of a lease granted before 22 June 2022 (pre-commencement lease) is granted a new lease over the demised premises or some of the demised premises (a replacement lease) the landlord will be able to recover the ground rent for the remainder of the pre-commencement lease. However, only a peppercorn rent will be recoverable for the new term under the replacement lease.
Next steps?
If you are a landlord purchasing a freehold building containing regulated leases you must check the position regarding recovered ground rents. You could be hit with the fine. There will be insurances available to assist in these situations.
If you are a leaseholder buying a leasehold property ensure your solicitor checks the ground rent provisions carefully and advises.
Please do not hesitate to contact us if you need further advice on the new legislation.