The Leasehold Reform (Ground Rent) Act 2022 (Act) caps ground rents in new long-term residential leases in England and Wales at a peppercorn (i.e. no monetary value).
Here are 10 things you need to know about the law:
1. Beginning: Although the law received Royal Assent on February 8, 2022, it is not yet fully in force. It is expected to come into full force within six months of Royal Assent. Different start days can be set for different types of leases. The earliest permitted start date for retirement home leases is April 1, 2023.
2. Scope: the law only applies to regulated leases. In general (subject to a few exceptions), these are leases granted:
- for a period of more than 21 years;
- with respect to a single dwelling;
- for a premium; and
- from the relevant start date for leases of that type and otherwise than under an existing contract entered into before that start date. It should be noted that, in this context, an option agreement or a right of first refusal does not constitute a contract within the meaning of the Act.
The law is broad enough to encompass the assignment and re-lease following an amendment (and, in this scenario, the premium requirement would not apply).
3. No retroactive effect: the law is not retroactive – it does not apply to leases granted before the relevant start date.
4. Exceptions: commercial leases, certain legal extensions of leases, co-housing leases and real estate leasing schemes, insofar as they meet the criteria for excepted leases, are excluded from the provisions of the law.
5. Prohibited rentals and permits: lessors of regulated leases must not require the tenant to pay prohibited rent. The default position is that prohibited rent is more than a peppercorn, except in the case of co-ownership leases and the replacement of certain prior leases where special rules apply. While rent is broadly defined, the law clarifies that monies payable for insurance and utilities (even when booked as rent) may still be enforced.
6. Construction of leases: a clause intended to reserve prohibited rent (i.e. rent above the levels authorized by law) will be interpreted as if it reserved only the authorized rent.
7. infringe: a landlord will break the law if he (or someone acting on his behalf) asks for the payment of prohibited rent and/or receives prohibited rent and/or does not reimburse it to the tenant within 28 days of day after receipt. “Owner” includes a person who has ceased to be an owner. “Tenant” includes a person acting on behalf of the tenant, a person who has ceased to be a tenant and/or a person who has guaranteed payment of rent by a tenant.
8. Executors: Breach of the Prohibition on Rent Prohibition may result in enforcement action by the Tenant, the local Weights and Measures Authority (i.e. Trading Standards) and/or the District Council.
9. Enforcement measures: a breach can result in fines of up to £30,000 (although there are rules dealing with multiple breaches), and/or a refund order or a recovery order.
ten. Administrative costs: the Act also requires that no administration fee be payable in connection with the collection of ground rent which is limited to a peppercorn by the Act.