Leasehold Reform receives Royal Assent

During the last few years, we have seen Developers and Landlords being pushed to abolish unfair ground rent charges so LRGRA 2022 should not come as a surprise.  LRGRA 2022 will prevent leaseholders becoming trapped by rapidly escalating ground rents that have resulted in people struggling to sell or obtain a mortgage.

LRGRA 2022 will limit the ground rent chargeable on most new long residential leases to one peppercorn per year, effectively restricting ground rents to zero financial value. The latter will create fairer, more transparent ownership for leaseholders. It will also prohibit payment of administration charges in relation to peppercorn rents. The provisions of the Bill will not take effect until the day appointed by the Secretary of State via regulations.

The LRGRA 2022 key points to consider are summarised as below:

• References to the grant of a lease include the case where, by virtue of any variation of a lease, there is a deemed surrender and regrant.
• Business leases, Statutory lease extensions and Community Housing leases are exempt.
• The Act applies to shared ownership leases, but a Landlord can continue to charge rent on their share of the property. Permitted rent applies for leases replacing pre-commencement leases.
• Financial penalties to be imposed if there is breach and other enforcement policies
• 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.
• The Act is not retrospective, so leases entered into before the Act or leases granted pursuant to an option or right of first refusal pre-dating the Act can still demand ground rent uncapped.
• A landlord demanding ground rent under a lease pre-dating the Act should be cautious to not inadvertently vary a lease to the extent it amounts to a surrender and regrant.
• Developers launching new schemes may want to pre-empt the new law by abolishing ground rents. Schemes that are already half sold at the time the law comes into force will inevitably face challenges where some tenants pay ground rents and others do not.

If you are a Landlord or a Tenant and would like to discuss LRGRA 2022 please call our office on 0207 431 1912 and ask to speak to a member of our Property team.