25th November 2022 | Shen Hussein | residential, residential real estate

Solicitor in the Residential Real Estate department, Sensel Hussein, examines what the recent amend to the Leasehold Reform Act might mean for future leaseholders.

In an attempt to make the leasehold system fairer, Royal assent was granted for the Leasehold Reform (Ground Rent) Act 2022 on 8th February 2022.

On the 23rd June 2022 Government Guidance published the following:

“The Act will make home ownership fairer and more transparent for millions of future leaseholders. The reputation of the leasehold system has been damaged by unfair practices that have seen some leaseholders contractually obligated to pay onerous and escalating ground rents, with no clear service in return. The Act will prevent this from happening in future, tackling significant ambiguity and unfairness for future leaseholders.”

For the Act to apply, and the lease to be defined as a “regulated lease”, certain criteria must be satisfied. The lease must:

  1. Be a long lease (more than 21 years) of a single dwelling
  2. Be granted for a premium (purchase price)
  3. Be granted on or after the commencement date, which in most cases is regarded as the 30th June 2022 (the date the Act was brought into force)
  4. Not be considered as an “excepted lease”

If the above is satisfied the landlord must not require a leaseholder to make a payment of prohibited rent (which includes ground rents) nor can the landlord charge an administration fee for collecting rents.

As far as the Act is concerned a permitted rent is a peppercorn rent which has been defined by the Act for the first time as “an annual rent of one peppercorn”.

As well as the Act reducing ground rents to a peppercorn it also protects leaseholders against landlords charging an administrative fee for collecting peppercorn ground rents so as to ensure leasehold properties are more affordable and further to reduce the incentive to charge a leaseholder an actual peppercorn ground rent.

So what does this mean for leaseholders/future leaseholders/you?

The Act does not currently apply to existing leases however, should there be a surrender and re-grant of a lease which extends the term or adds additional property to the demise, there is a possibility the Act may apply subject to the qualifying criterial being met.

There are however, certain leases to which the Act does not apply. These include:

  • Business leases
  • Statutory Lease extensions
  • Community Housing Leases
  • Home Finance Plan Leases
  • Retirement homes up until 1st April 2023 after which it is proposed the Act will apply

Should Landlords fail to comply with the Act, they could face penalties from £500 to £30,000.

 

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