The Abolition of Ground Rents under the Leasehold Reform (Ground Rent) Act 2022
Ground rent is usually seen as a windfall for landlords of leasehold premises as it is an archaic provision unrelated to any benefit that a tenant will gain (unlike service charges).
Ground rent was typically part of the calculation for working out the premium to be paid to the landlord if a tenant wanted to extend their lease, so the higher this was, the more compensation a landlord will recover as part of the premium payable.
There has been recent controversy over leases which included onerous clauses allowing for ground rents to be increased at alarming rates (sometimes doubling) which we discussed back in 2017 and 2018:
- The problem of doubling ground rent in Taylor Wimpey new homes
- Beware new build leases and the ground rent clause
This has prompted the government to finally take action to tackle this.
The Leasehold Reform (Ground Rent) Act 2022
This came into force on 30 June 2022 and applies to a ‘regulated lease’ being a long lease (over 21 years) of a single dwelling granted for a premium after the commencement date of the Act which is not an ‘excepted lease’.
An excepted lease is:
- a business lease
- a lease extended under the Leasehold Reform Act 1967 or Leasehold Reform, Housing and Urban Development Act 1993
- a community house lease or
- a home finance plan lease
The Act states that a landlord must not require a tenant to pay a ‘prohibited rent’. The permitted rent is a peppercorn rent (which is equivalent to £0). Administrative charges for peppercorn rents are also prohibited.
Failure to comply with the Act could result in:
- Fines between £500 and £3000
- Refund of any prohibited rent paid
- Interest on the above
This is the first step of the government’s reform package to ensure homeownership is ‘cheaper, fairer and more secure.’
Future measure could include making it cheaper and easier to buy the freehold or extend a lease. These measure are currently being consulted on.
Other Forms of Redress
Unfortunately the Act does not apply retrospectively.
Statutory lease extensions still provide for peppercorn rent to be introduced for the extended lease.
Some landlords have voluntarily agreed not to enforce the onerous ground rent provisions given the adverse publicity.
The Competition Market Authority (CMA) has also secured commitments with major homebuilders (such as Aviva, Persimmon, Countryside Properties, Taylor Wimpey and others) to stop doubling ground charges every year for leaseholders, and instead their ground rent will reverse to the level it was when the tenant first bought their home. Investigations are ongoing with other major homebuilders.
Failing the above, then a tenant may wish to look to their conveyancing solicitor to see whether they were negligent in the provision of advice at the time over these onerous terms. There are strict limitations for these type of actions and a court would expect you to mitigate any loss. Advice should be sought at an early stage so that you can be appraised of the relevant options before embarking on costly and time consuming litigation.