Home A peppercorn for all – new ground rent reform

A peppercorn for all – new ground rent reform

There are big changes afoot in the leasehold sector. The Leasehold Reform (Ground Rent) Act 2002 received Royal Assent on 8 February 2022 and its impact is expected to be felt by developers, landlords and leaseholders across the country.

The Act has been described by the Government as ‘’part of the most significant changes to property law in a generation’’ and will abolish the creation of new ground rents for qualifying residential long leases.

For years, escalating ground rents has been a contentious issue. This is especially true where conditions are met giving rise to the possibility that residential long leases granted could be held to be an AST (Assured Tenancy) under the Housing Act 1988.

The new Act will prevent the creation of rapidly doubling or escalating ground rent payments and aims to create a fairer and more transparent ownership system for leasehold property.

What does this mean for landlords?

Landlords will need to be mindful of the provisions of the new Act when granting new leases to ensure they are not unwittingly in breach.  The Act is not retrospective so existing ground rents are unaffected, but landlords should take care when varying existing leases as a  variation  which gives rise to a deemed surrender and re-grant  will be subject to the peppercorn ground rent cap.
Landlords who demand ground rent in contravention of the Act and fail to refund it to the leaseholder within 28 days will be liable to face of fine ranging from £500 – £30,000 per qualifying lease.

Additionally, leaseholders of qualifying residential long leases have the right to apply to the First-Tier Tribunal (Property Chamber) in England for a declaration that a term reserving prohibited ground rent is replaced with peppercorn rent.

The provisions of the 2022 Act are expected to commence within six months of Royal Assent and are only a small part of the Governments wider leasehold reform scheme and it is likely that further measures to existing residential long leases will be announced in the future.

If this decision affects your existing site or you would like advice on whether proposed variations or grants of leases will fall within the Act please contact Laura Gregory to discuss further.

Laura has been working at SLC since 2009 and has a wealth of experience in landlord and tenant law as part of the Property Team with  particular specialism in lease extensions and variations.

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