The Leasehold Reform (Ground Rent) Act 2022: Landlords and developers beware serious sanctions for non-compliance

Leasehold Reform (Ground Rent) Act 2022

The Leasehold Reform (Ground Rent) Act 2022 received Royal Assent on 8 February 2022 and will come into force on 30 June 2022. The legislation formally implementing the Act has been published (The Leasehold Reform (Ground Rent) Act 2022 and (Commencement) Regulations 2022), which bring the Act into force on 30 June 2022, save in relation to retirement properties. The Act will apply to retirement properties from 1 April 2023.

There are serious sanctions for non-compliance so landlords and developers granting long leases of residential premises will need to be aware of the Act and how its provisions will affect their businesses.

What are the implications of the Act?

The Act restricts payment of ground rents in most residential long leases of a single house or a flat granted on or after 30 June 2022 for a premium in England and Wales to a peppercorn. A landlord is also prevented from making any administration charge in connection with a rent which is a peppercorn rent under the Act.

What type of premises/leases does the Act apply to?

The Act applies to “regulated leases” which are long leases (of more than 21 years) of a single house or a flat, granted for a premium after the commencement date (i.e. after 30 June 2022). This also includes variations to a lease where the lease is effectively surrendered and re-granted.

The following are exempt under the Act:

• business leases
• leases granted under the Leasehold Reform Act 1967 (tenant of a leasehold house entitled to extended lease)
• leases granted under the Leasehold Reform, Housing and Urban Development Act 1993 (tenant of a flat entitled to extended lease)
• community housing leases
• home finance plan leases; and
• rent to buy arrangements.

When does leasehold reform (ground rent) act 2022 come into force?

The Act comes into force on 30 June 2022, except in relation to retirement flats/houses where the Act will apply from 1 April 2023.

Does the Act have retrospective effect?

No, the Act only applies to leases granted after 30 June 2022.

What happens if contracts have been exchanged before the Act comes into force but completion takes place after 30 June 2022?

If contracts have been exchanged before 30 June 2022 and the grant of a new lease takes place after 30 June 2022 then the lease will not fall within the scope of the Act. Therefore, a ground rent, above a peppercorn, may be charged. If exchange and completion take place after 30 June 2022, the Act applies in full and only a peppercorn ground rent is chargeable.

What is the impact of the Act on lease extensions?

Statutory lease extensions are exempt under the Act. In any event, the relevant statutes already provide for a peppercorn ground rent from the date of completion of the extended lease and the calculation of the premium takes account of this.

Where a voluntary lease extension of a house or a flat (or of some or all of the premises demised by the existing lease) is granted after 30 June 2022, the ground rent specified in the existing lease continues to be payable for the remainder of the term of the original lease prior to its extension. During the extended term, however, only a peppercorn rent is payable (i.e. from the date of expiry of the term of the original lease to the date of expiry of the extended term).

How does the Act apply to shared ownership leases?

Where the tenant has not yet acquired 100% of the premises under a shared ownership lease, granted after the Act comes into force, a landlord can charge ground rent on their share of the property but only a peppercorn rent is payable on the tenant’s share of the property.

Abolishing ground rent in new leases is part of a package of leasehold reforms which the Government intends to implement including substantial changes to the calculation of premiums and processes for lease extensions and collective enfranchisement and a move towards increased commonhold ownership. For now, landlords and developers will need to get up to speed with the detail of the Act before the end of June to avoid serious sanctions for non-compliance.

Please visit our Essential Residential hub and our timeline: Changing landscapes in residential leasehold to keep up to date with developments.

For more information please contact Natalie Deuchar, Laura Bushaway or your usual Charles Russell Speechlys contact. This insight is not a substitute for legal advice on the specific circumstances of your case.