Leasehold Reform (Ground Rent) Act 2022 (“LR(GR)A22”)

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The long awaited Leasehold Reform (Ground Rent) Bill receive Royal Assent yesterday.

The broad aim of the Act is to limit ground rents for leasehold houses and flats to a peppercorn and prohibiting the payment of administration fees in relation to peppercorn rents.

LR(GR)A22 does not apply to commercial properties.

The main provisions of the Act, including in relation to ground rents, will come into force on key dates to be specified by the Secretary of State and the Government has given a commitment that it will be fully commenced within six months of Royal Assent, except with regard to retirement home leases, which is expected to come into effect from 1 April 2023 in order to give the retirement sector additional time to transition.

Most notably, the prohibition on chargeable ground rents will only apply to new leases of residential properties granted on or after the date of commencement of the relevant provision and not to existing leases, unless they are subject to an option or right of first refusal.

It also does not apply to existing leases and community housing leases, but it does apply to a voluntary lease extension, which is deemed as a surrender and re-grant.

There are special provisions under the Act in relation to shared ownership and reversionary/concurrent leases.  Help-to-Buy properties are already subject to peppercorn rents as a requirement for developers to join the scheme.

Importantly, there are financial penalties for breach and the Trading Standards Authorities will be able to impose a fine of between £500 and £30,000.  In addition, leaseholders will be able to recover unlawfully charged ground rents in England and Wales.

Given that the Act is expected to be fully implemented by this summer, landlords will no doubt start to consider their exit strategies for when their development is completed; and we may also begin to see an increase in leaseholders looking to negotiate voluntary lease extensions.

We will provide updates in relation to the commencement dates, and it is worth bearing in mind that this may be the first of many property reform acts to come.

This article is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this article may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.

Susan Braddick

Associate (Licensed Conveyancer)

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