On 8 February 2022, the Leasehold Reform (Ground Rent) Act 2022 (‘the Act’) received Royal Assent. The purpose of the Act, is to restrict ground rents on newly created long leases, but does not yet provide for all of the reforms which are presently proposed by the government. Whilst the Act has received Royal Assent, its provisions are not yet in force, although it is expected that all of the provisions will commence within 6 months of Royal Assent being provided (and therefore within the summer months of this year).
The purpose of this article, is to provide an overview of the Act, and how it impacts in relation to the grant of leases.
First and foremost, the Act relates to the grant of a long lease of a single dwelling for a premium, after the date of commencement, and which is not an excepted lease. The act also applies to surrenders and re-grants, by virtue of a variation of an existing lease. Leases however which are excepted are business leases, statutory lease extensions, community housing leases, and home finance plan leases.
The Act specifically prevents, in relation to those leases detailed above, the landlord requesting payment of a prohibited rent from the tenant. Prohibited rent is specifically defined to mean any rent, that exceeds the permitted rent, which is also denied by the Act.
In relation to the majority of the leases, the permitted rent is a peppercorn. This is legal terminology for a nil ground rent; and therefore the Act prevents any new lease from being granted, for anything other than a peppercorn ground rent.
For shared ownership leases, the landlord will be able to charge a rent for the proportion which they retain, but any rent on the tenant’s share again can only be a peppercorn.
Where a lease replaces a pre-commencement lease, the position is slightly different.
Where a deed of surrender and re-grant is entered into, from the date of the new lease, to the end date of the original term, the rent will remain as per the original lease. This means that the rent cannot be increased in the course of the deed of surrender and re-grant. However, after the end of the original term, any rent under the new lease must again be charged at one peppercorn.
In relation to shared ownership leases which are altered, the above applies, but only in relation to the tenant’s share.
In the event that a prohibited rent is charged at any time, the local authority is able to take the step of enforcing the provisions as against the relevant landlord; and is able to impose a fine, of not less than £500, but no more than £30,000. A landlord’s liability in relation to a breach, is limited to one financial penalty per lease. However, the local authority is given the opportunity, to only impose one financial penalty, in respect of situations where there is more than one breach of the lease.
In the event that a prohibited rent has been received by a landlord, there is the ability under the Act for the tenant to apply to the appropriate Tribunal, for the purpose of recovering any sum which has not been refunded, together with interest thereon. Further, there is the ability for landlords and tenants alike to make an application to the appropriate Tribunal, for the purpose of determining whether or not a lease includes a prohibited rent. For the purpose of the Act, the appropriate Tribunal is the First Tier Tribunal.
The Act also seeks to make either amendments generally to leasehold law; and specifically prevent administration charges from being payable in connection with a relevant rent, which is defined as being a rent which is payable by virtue of the Act.
The Act therefore has moved in the right direction in relation to the restriction of ground rents which are payable in respect of leasehold properties. It has not yet gone so far as to amend the existing leasehold law; and the usual law in respect of enfranchisement and lease extensions presently applies. It will however provide some comfort to those who are looking to extend their lease on an informal basis or indeed take the grant of a new lease.
Should have any queries regarding your commercial lease, including rent arrears or otherwise, you should contact Lorraine Lancaster on the contact form below or by phone on 01702 662963 (Essex) 020 35537115 (London).