The Leasehold Reform (Ground Rent) Bill 2012-22 was passed in February 2022. It relates to the leasehold contracts that are made between a leasehold property owner and the landowner (such as a developer). When the bill comes into force, it means that most new residential long leases will be capped at ‘a peppercorn’ or £nil. In other words, ground rent cannot be charged for leasehold properties in many circumstances on new properties (but the bill cannot be applied retrospectively).
Leasehold landowners are often developers who keep control of the ground rent of a property after the property itself has been sold. This keeps the leasehold property owners at the mercy of these landowners who, previously, could have increased ground rents as they wished. This new Leasehold Reform bill has been put in place to help to reduce this occurring.
What is leasehold reform?
Under the new leasehold reform bill, ground rents will not be allowed to be charged on long residential leasehold properties. This applies to properties in England and Wales and has been bought into action with the intent of making the leasehold market fairer and more transparent. It can help to protect leasehold property owners from rapidly increasing ground rents that they previously would not have been able to avoid.
The idea of the amount of ground rent that can be charged being capped at ‘a peppercorn’ means that virtually nothing can be charged (as a peppercorn has virtually no value), and in addition to this, no administrative fees may also be charged.
The leasehold reform bill does not, however, refer to all leasehold contracts. It refers to new, long leases – leases that last for 21 years or longer but also has some other exceptions.
It is important to remember that the Leasehold Reform (Ground Rent) Bill 2012-22 is seen in the eyes of the government as part of a wider package of reforms to the law relating to leaseholds. Although this is the only part that has been passed as of yet, it is likely that there is more to come. Some of the other expected reforms include changing the process for leasehold extensions and collective enfranchisement and changes to the calculation of premiums. It is likely that these changes are going to be made at some point before the predicted General Election in 2024.
When will leasehold reform become law?
The Leasehold Reform (Ground Rent) Bill 2012-22 was first announced on 7th January 2021. It received Royal Assent on 8th February 2022 and should be bought into force within six months of this date. The fact that it was granted Royal Assent means that it is now law (an Act of Parliament) but will come into force on the day that the Secretary of State appoints, which should be sometime soon.
It is expected, of course, that there will be further leasehold reform bills passed at a later date, and these will become law as and when they are passed.
Will 2022 Leasehold reform apply to all leases?
The new leasehold reform bill will not apply to all leases that exist. They will affect ‘regulated leases’. These are leases that come into force after the commencement date of the bill or leases that have been entered into before the commencement date but are surrendered and re-granted after the commencement date. This means that any existing leases are not covered by the bill unless they are terminated and re-issued.
There are also some other leases that are not affected by the Leasehold Reform (Ground Rent) Bill 2012-22, These are known as ‘Excepted Leases’, and consist of examples such as (but not exclusively):
- If the freeholder is a community land trust
- If the lease allows the operation of a business (but not a home business – within the meaning of Part 2 of the Landlord and Tenant Act 1954 – section 43ZA)
- If the lease is a home finance plan lease, including where a rent to buy finance arrangement is in place
- If the leasehold property is within a building that is controlled by a cooperative society
- The bill does not apply to retirement leasehold properties until 1st April 2023
The new leasehold reform bill will also apply to shared ownership arrangements, but the Landlord may still charge rent for their part of the property.
The law stipulates that if ground rent is illegally charged in contravention of the bill, or any payment that has been made is not returned (within 28 days), the Landlord may be fined an amount between £500 and £30,000 per lease that is in contravention.
Leasehold reform 2022 and shared ownership leases
Shared ownership leases will be considered to be ‘regulated leases’, and are, therefore, also impacted by Leasehold Reform (Ground Rent) Bill 2012-22. This means that any new long-term contract that is taken out under a shared ownership arrangement, will have its ground rent capped at ‘a peppercorn’ (zero).
This does not mean, however, that landlords cannot charge for rent on their part of the property if this applies.
It is important to remember that the Leasehold Reform Bill only applies to new regulated leases – not retrospectively, in the same way as other leasehold contracts. This means that if you already have a shared ownership arrangement, it will not be affected unless the original contract is surrendered and a new one is made.
Speak to one of our experts
Understanding the Leasehold Reform (Ground Rent) Bill 2012-22 can be complicated, regardless of whether you are a landlord or leasehold property owner. Whether you are a landlord looking to draw up a new contract or a leasehold property owner that believes that you are being unfairly charged ground rent, our friendly team of legal experts is here to make things clearer for you.
Contact us now and we can provide you with accurate advice and useful information to help you to resolve any issues that you have with your lease with reference to the Leasehold Reform (Ground Rent) Bill 2012-22 and any other contract issues.
Last reviewed on 11/07/23 by Abigail Gray who is an Associate Solicitor