Leasehold Reform (Ground Rent) Act and what it means for you

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.

 

Achieving vacant possession for our client.

Sherrards’ Real Estate Litigation and Residential teams worked together to help our client to get vacant possession.

Vacant possession means the property must be empty on the day you complete your purchase or sale of it. 

The £5million property in Kensington had been sold subject to contract, however, there was a tenant in the property who was refusing to leave which was jeopardising the sale.

Proceedings were issued in the High Court.

Michael Lewis and his team worked hand in hand with our Residential Real Estate department in order to provide vacant possession and a successful outcome for our client and the sale of their property.

Sherrards help client Global Infusion Limited with dilapidations claim

At the end of the Lease the Landlord served a substantial dilapidations claim. Mike and the team used arguments involving a section 18 valuation to significantly reduce the Tenant’s liability. 

The team worked closely with Brasier Freeth one of the leading surveyors in Hertfordshire to help resolve this matter for our client.

Breaking Up Is Never Easy

Break clause can greatly assist with a tenant’s portfolio management. It is a potential opportunity for the tenant to relocate to cheaper premises or renegotiate new terms and can be a valuable provision, particularly in this volatile market.

However, it is not an entirely straightforward process and there can be various conditions attached to break clauses which can be difficult to satisfy.

Ideally, you will only want one condition, that is, a condition of service of notice to break – this is often 6 months’ notice but sometimes it can be 12.

A condition with any uncertainty such as vacant possession should be avoided at all costs – every property lawyer knows the sack of coal story (more on this in a future article!)

Notice

Most break provisions do not specify a certain form of notice but some do and the tenant must comply with the terms. If no specific form of notice is mentioned, notice must be clear regarding who it is directed to, which provision it relates to and what it is intended to do.

It must be served by the date specified in the break clause and served on the right party at the correct address. The party is usually the landlord but for the avoidance of any doubt, it is usually advisable to serve a copy of the notice on the landlord’s agents and solicitors to cover all bases.

All other terms of the break must be fully complied with (e.g. paying outstanding rent by the break date) in order to have a realistic chance of breaking. The break clause should specify whether the conditions must be satisfied at the date of service of the break notice or at the break date, or both.

If there is a condition, for example, that all rents are paid, it is important to determine how the lease defines rent. If the lease provides for default interest on late rent payments, and the tenant had sometimes paid rent late, although the landlord had never demanded this interest during the tenancy, the landlord can resist the break clause by highlighting the interest “technically” due.

Seeking advice from us early on is essential to manage the process successfully, making sure the notice is properly drafted and served and that the tenant fully understands their obligations. Where there is an obligation to deal with dilapidations, an independent surveyor should also sign off works as being compliant before the break date.

When advising tenants, we always push hard to get written confirmation from the landlord that the break has been waived.

Contact Mike for more information.