By way of a reminder of B P Collins’ residential property team’s earlier article, the Leasehold Reform (Ground Rent) Act 2022 (“the Act”) came into effect on 30 June 2022, which effectively banned Landlords from charging ground rent in new residential long leases in England and Wales (subject to some exceptions). Doubling and escalating ground rents have been viewed negatively for some time and the Act was a way of making leasehold home ownership fairer, more transparent, and more affordable for those with their sights set on getting onto the property ladder.
The Act applies to ‘regulated’ new leases – those granted on or after 30 June 2022 – for a term of at least 21 years, at a premium (or more commonly known as for a purchase price). The Act imposes a limit of one peppercorn rent per annum. Landlords are not actually obliged to collect the peppercorn and in practice are unlikely to do so. If the Landlord does choose to collect the peppercorn, then they will not be able to charge an administration fee for such collection.
The Act does not apply, for example, to leases which are not regulated, community-led housing or business leases or voluntary lease extensions, which can retain the rents applicable to the original lease term.
Statutory lease extensions do not require the protection of the Act because new leases granted under the statutory route have ground rents reduced to a peppercorn by provisions already in place under the Leasehold Reform, Housing and Urban Development Act 1993.
At the time the Act came into force, leases of retirement homes were granted a transition period meaning the Act would not apply to them until 01 April 2023. Ground rents imposed under retirement leases are usually much higher given most residential developments have on site health professionals and communal areas to be enjoyed by the residents. Reducing ground rents therefore means the developers or operators need to establish other ways of recovering these additional costs.
Retirement leases are also renowned for containing provisions requiring fees upon a subsequent sale, for example a transfer fee being a percentage of the sale price or market value and contingency fees being a percentage of the sale price or market value to be put towards any reserve or contingency fund held by the Landlord or Management Company. We may find over time that new retirement leases with peppercorn rents include increased transfer and contingent fees as a way for operators to recover lost ground rents.
For now at least, the Act puts retirement homeowners on a level playing field with other regulated leaseholders.
For further advice and information from B P Collins’ property team or landlord and tenant dispute resolution team, please email enquiries@bpcollins.co.uk or call 01753 889995.
