Ground Rent Reform Finally Arrives by Jonathan Everett

Jonathan Everett, Head of Leasehold Enfranchisement & Disputes, discusses the Leasehold Reform (Ground Rent) Bill which received Royal Assent on 8 February 2022.

The Leasehold Reform (Ground Rent) Act 2022 (LRGRA 2022) will, when it comes fully into force, limit the ground rent chargeable on most new long residential leases to a peppercorn, effectively restricting ground rents to zero financial value. It will also prohibit payment of administration charges in relation to peppercorn rents.

Subject to exceptions, the ground rent restrictions will apply to leases of dwellings granted on or after commencement of the relevant provisions. The restrictions will not apply to leases granted pursuant to pre-commencement contracts (unless pursuant to an option or right of first refusal). Special rules apply to shared ownership leases and leases that replace pre-commencement leases, such as voluntary lease extensions (replacement leases). In the case of replacement leases:

• Until the end of the term of the pre-commencement lease, the rent payable cannot exceed the rent payable under the pre-commencement lease.
• From the end of the term of the pre-commencement lease to the end of the term of the replacement lease, the rent payable will be a peppercorn.

Certain types of leases are excepted from the ground rent restrictions: business leases, statutory lease extensions of houses and flats, community housing leases and home finance plan leases.

The LRGRA 2022 will be brought into force at different stages:

• The main provisions (including the ground rent restrictions) will come into force on a date or dates to be specified by the Secretary of State in regulations. The Secretary of State may appoint different days for different purposes, including for different kinds of leases.
• The only sections coming into force on Royal Assent are sections 2 and 9 (for the purpose of making regulations) and sections 20-26 (interpretation and other general provisions).

The LRGRA 2022 has not been fully commenced because time is needed to prepare regulations. The Government has given a commitment that it will be fully commenced within six months of Royal Assent, except in relation to retirement home leases, where substantive provisions must not come into force before 1 April 2023. This is intended to give the retirement sector additional time to transition.

Trading standards authorities will be able to impose financial penalties of between £500 and £30,000 for breaches. Leaseholders will be able to recover unlawfully charged ground rents through tribunals in England and Wales.

The LRGRA 2022 has been heralded as the precursor to more substantial residential leasehold reforms planned by the government, such as reforming the law on statutory leasehold extensions and enfranchisement.

We act for both freehold landlords and leaseholders, which enables us to offer rounded, expert and practical advice on what to do and how to do it. Please contact Jonathan if you would like advice on this niche area of the law.