Reform of residential leasehold law moves a step closer

The first stage in the governments much vaunted reforms of residential leasehold law came a step closer to reality last week, when the Leasehold Reform (Ground Rent) Bill received Royal Assent on 8th February 2022.

The Leasehold Reform (Ground Rent) Act 2022 (LRGRA 2022) will (when it comes fully into force) limit the ground rent chargeable on most new long residential leases to one peppercorn per year, effectively restricting ground rents to zero financial value. It will also prohibit payment of administration charges in relation to peppercorn rents.

Subject to exceptions, the ground rent restrictions will apply to leases of dwellings granted on or after commencement of the relevant provisions. The restrictions will not apply to leases granted pursuant to pre-commencement contracts (unless pursuant to an option or right of first refusal). Special rules apply to shared ownership leases and leases that replace pre-commencement leases (such as voluntary lease extensions).

Certain types of leases are excepted from the ground rent restrictions: business leases, statutory lease extensions of houses and flats, community housing leases and home finance plan leases.

The LRGRA 2022 will be brought into force at different stages. The main provisions (including the ground rent restrictions) will come into force on a date or dates yet to be specified by the Secretary of State. The reason the main provisions have not been fully commenced is because further time is needed to prepare the regulations. Government Minister Lord Greenhalgh has given a commitment that it will be fully commenced within six months of Royal Assent (except in relation to retirement homes).

The substantive provisions must not come into force in relation to retirement home leases before 1 April 2023. This is intended to give the retirement sector additional time to transition to the new regime.

Trading standards authorities will be able to impose financial penalties of between £500 and £30,000 for breaches. Leaseholders will be able to recover unlawfully charged ground rents through tribunals in England and Wales.

Written by : Mark Oakley (Partner).

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