Reforming Ground Rent

At the start of this year, the government announced a raft of proposed leasehold reforms. We covered this announcement here.

Further progress has been made on The Leasehold Reform (Ground Rent) Bill. Last month, the Bill received its second unopposed reading in the House of Commons. The Bill, which has already been passed by the House of Lords, will now undergo further scrutiny by Parliament before receiving Royal Assent and becoming law.

What’s in the Bill?

The Bill will limit the payment of ground rent to a peppercorn, in certain residential long leases of a single house or a flat, granted for a premium in England and Wales. A long lease is a lease granted for a term of 21 years or more.

There are exemptions to the legislation e.g. business leases, statutory lease extensions of houses and flats, community housing leases, and home finance plan leases.

The Bill will apply to shared ownership leases where a Tenant does not own 100% of the property. In this scenario, the Landlord can charge rent on their share of the property, but only a peppercorn rent is payable on the Tenant’s share of the property.

It will also apply to leases of retirement properties, but only those granted after 1st April 2023.

Will the Bill Apply Retrospectively?

No, the Bill will not affect existing leases. The Bill only applies to new leases granted after it becomes law.

However, there is a duty on Landlords to inform Tenants of the proposed changes in the Bill, during the period when the Bill has been passed by Parliament but is not yet in force.

What About Voluntary Lease Extensions After the Bill Becomes Law?

Ground rent can still be charged for the original term of the original lease. However, for any period after the original term, only a peppercorn rent is payable.

What are the Sanctions for Non-Compliance?

Demanding ground rent and/or receiving prohibited ground rent, and not paying it back within 28 days, will trigger a breach.

Tenants, or Local Authorities, can apply to have any prohibited ground rent repaid to the Tenants with interest.

Fines for non-compliance of up to £30,000 can be issued per breach by Local Authorities and Trading Standards.

Tenants will have the right to apply to the First-Tier Tribunal (Property Chamber) to replace any clause in the lease requiring payment of prohibited ground rent, with a clause requiring payment of the appropriate ground rent (e.g. a peppercorn or the permitted rent for a voluntary lease extension).

How can Pinney Talfourd Help?

Pinney Talfourd are experts in commercial and residential property litigation and can advise you on changes to the law so you are given up to date advice.

Please do not hesitate to contact either Stephen Eccles on 01708 463202 or Oliver-James Topping on 01708 463227 should you wish to discuss anything further.     

This article was written by Oliver-James Topping, Solicitor in the Residential Property Litigation Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of December 2021.