The Leasehold Reform (Ground Rent) Act 2022 - What's the fuss?

On the 8th February 2022, the Leasehold Reform (Ground Rent) Bill received Royal Assent. It is expected to come into force within 6 months of this date. It has been described by the Government as the most significant change to Property Law in a generation.

So what is all the fuss about? On review, the changes should (in theory) lead to a fair and more transparent way of owning a future leasehold property. As you may already have noticed, there has been plenty of adverse news coverage concerning leasehold ownership. This Act seeks to address some of those public concerns by: (1) restricting the amounts charged by Landlords as “ground rent” to one peppercorn and (2) banning freeholders from charging administration fees for collecting a peppercorn rent.

The Act will apply to every long residential lease (terms 21 years in length or more) granted for a premium and entered into from and including the day the statute came into force.

The Act does make some exceptions. It does not apply to business leases and statutory lease extensions of houses and flats. So far as shared ownership leases are concerned, the changes do not apply to the Landlord’s share in the demised premises, only the tenants.

A civil penalty regime is in place and where ground rent is demanded in contravention of this Act, and not repaid within 28 days beginning with the day after its receipt, the landlord may face a fine from between £500 to £30,000 per qualifying lease.

Landlords will need to be careful on two fronts here: (1) to avoid limiting their income stream by innocently agreeing to a variation of a lease that would constitute a deemed surrender and regrant of the lease at law (and be caught by the new Act) and (2) they will need to ensure they avoid incurring liability due to non-compliance (when granting a new lease).

It is important to appreciate that the Act is not retrospective - so the Landlords of existing leases entered into before the Act came into force can still demand uncapped and escalating ground rents.

Summary

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