On 8 February 2022, the Leasehold Reform (Ground Rent) Bill received Royal Assent. The Act is not in force yet, but this is due to happen on 30th June 2022 in respect of most new long residential leases (except in relation to retirement home leases). The Act will apply to and limit ground rent on certain ‘Regulated Leases’ to a ‘peppercorn rent’.
Peppercorn Rent
A 'peppercorn rent’ in this context means an annual rent of one peppercorn. A peppercorn rent has no financial value. The purpose of limiting the recovery of ground rent in this way is to avoid leaseholders being penalised by ever-increasing ground rents over long lease terms thereby creating a fairer, more transparent residential leasehold ownership and valuation structure.
Will this apply to your lease?
The term ‘Regulated Lease’ means any lease which is a residential long lease of a single dwelling granted for a premium (a purchase price) and entered into from and including the day the Act comes into force. A long lease is a lease for a term of more than 21 years.
Where there is a deemed surrender and re-grant of an existing residential long lease (which incidentally can happen without an express grant in the case of an agreed extension of the term of an existing lease or an agreed change in the extent of the property comprised in a lease) the varied lease will be caught by the Act even if it was not formally granted for a premium.
The Act will not apply in respect of the following leases:
- Business leases;
- Statutory lease extensions of houses and flats;
- Community housing leases; and
- Home finance plan leases.
Sanctions
If ground rent is demanded and the Landlord demanding such rent is deemed to have breached Section 3 of the Act, the Landlord will face a fine ranging from £500 - £30,000 per Regulated Lease.
If a Tenant has made a payment of ground rent which is deemed to be a breach of Section 3 of the Act and has not been refunded, the Tenant may apply at a tribunal for a recovery order against the party in breach.
Considerations for Landlords
The Act is not retrospective, which means that leases entered into before the Act comes into force may reserve an uncapped ground rent. Furthermore, action can be taken against both past and current landlords for any breach under the Act, as well as any persons acting on their behalf.
Please get in touch with your usual 3CS contact for more information.
