The Leasehold Reform (Ground Rent) Bill (“the Bill”) received royal assent on 8 February 2022. The Government has now confirmed that the majority of the provisions in the Leasehold Reform (Ground Rent) Act 2022 (“The Act”) will come into force on 30 June 2022. B P Collins’ property team explains what it means for landlords and leaseholders.
What is it?
The Bill aimed to tackle the amount of rent payable under long leases of dwelling and now the Act will limit the ground rent chargeable on most new long residential leases to one peppercorn per year. A ‘peppercorn rent’ being a token or nominal rent.
The Act is largely in favour of Leaseholders with fines of £500 up to £30,000 being enforced against Landlords in breach of the Act. Leaseholders, under the Act, will now also be able to recover any ground rent that has been unlawfully charged through the England and Wales tribunals. There are also provisions for interest to be recovered in relation to prohibited rent charges.
What will it apply to?
It will apply to new long residential leases granted on or after 30 June 2022. It is not retrospective. The same will happen for retirement leaseholds where only leases entered into for retirement homes after 1 April 2023 will be covered by the Act (a specific date is still to be announced).
The restrictions will not apply to:
- Leases granted pursuant to pre-commencement contracts (unless pursuant to an option or right of first refusal)
- Business leases
- Statutory lease extensions of houses and flats
- Community housing leases
- Home finance plan leases
Special rules will apply to shared ownership leases and leases that replace pre-commencement leases.
What does this mean?
It is particularly important for Landlords who are currently involved in negotiating and granting long residential leases to ensure their leases are compliant where completion is due to take place on or after 30 June 2022. Failure to comply with the Act means Landlords will risk being a party to tribunal proceedings and receiving sanctions of up to £30,000 for non-compliance.
The funds from the financial penalties paid by non-complying Landlords will be put towards the costs of enforcing the legislation. Any costs left over will be paid to the Secretary of State for premises in England and to the Welsh Ministers for premises in Wales.
Note: Section 2, Section 9 and Sections 20 to 26 of the Act came into effect when the Bill received Royal Assent. The provisions relating to retirement home leases will not come into force before 1 April 2023 to allow for a longer transition period required by retirement homes.
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