Leasehold Reform: Ground Rent Bill gains Royal Assent

In just over a year since it was announced by the Government, on 8 February 2022, the Leasehold Reform (Ground Rent) Bill received Royal Assent from Her Majesty the Queen. We first wrote about the Bill in January 2021 and how it proposed to limit the ground rent chargeable on most new long residential leases to a peppercorn per year, effectively restricting ground rents to zero financial value (see here for our blog post). We subsequently wrote about the much needed amendments made to the Bill by the House of Lords in July 2021 (see here).

When is the Act in force?

It is worth noting from the outset that the Leasehold Reform (Ground Rent) Act 2022 (the Act) is not yet fully into force. Section 25(1) provides that the Act will come into force on such day as the Secretary of State may appoint. That appointment must be made by regulation. The only exceptions to this are the regulation-making provisions contained in sections 2 and 9, which otherwise concern the types of excepted leases and financial penalties, and sections 20 to 26, which concern interpretation, regulations and consequential amendments.

Helpfully, Lord Greenhalgh (Minister for Building Safety and Fire) has committed to the House of Lords that the commencement date will be within six months of Royal Assent (ie by 8 August 2022), except in relation to retirement home leases, where the substantive provisions must not come into force before 1 April 2023. This is intended to give the retirement sector additional time to transition. It is also worth noting that the Secretary of State has the discretion to introduce differing commencement dates for different types of leases.

This will, of course, provide a helpful transitional period (including the 13 months prior to 8 February 2022 where such measures were announced) for landlords and investors who enjoy an income stream from ground rents.

What will the Act do and to which leases will it apply?

As we have covered previously, once those provisions are brought into force, the Act will restrict the ground rent on long leases (ie where their term exceeds 21 years) to one peppercorn per year, subject to some exceptions. The Act also prohibits the charging of any administrative fees in respect of the peppercorn rent.

The Act expressly excludes business leases, community housing leases, home finance plan leases, and lease extensions granted pursuant to Part 1, Leasehold Reform Act 1967 or Chapter 2, Part 1, Leasehold Reform, Housing and Urban Development Act 1992. This narrows its application to residential long leases.

The Act is also notably prospective in nature. It will not affect long leases already granted in respect of residential premises which require the payment of ground rent, or even doubling ground rent, or those leases which are granted pursuant to agreements for lease completed before the commencement of the Act. These aspects of the Act will be disappointing to existing tenants, albeit a boon to landlords and investors. The very purpose of the Act was stated by the Government to make leasehold ownership "fairer and more affordable", and yet it arguably solves only half the issue. Many existing tenants may consider that there is still unfairness if they are subject to ground rent provisions in their leases, including any doubling ground rent provisions, when new tenants are not subject to the same financial obligations.

Amendments to the Bill, which subsequently made their way into the Act, have further assisted landlords. It is typical in leases to see insurance premiums, rates, and services (amongst other things) reserved as rent under a lease. In its first incarnation, the Bill had landlords potentially being prevented from recovering those sums, if they fell within the meaning of "rent" in the Act. Subsequent amendments has expressly removed this risk.

Primary responsibility for enforcing the Act is with the local weights and measures authorities (ie Local Authority Trading Standards); though, District Councils are also empowered to enforce. Breaching the Act may result in a fine of between £500 and £30,000 and so landlords will need to make sure they are aware of these provisions when the Act finally comes into force.

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