Ground Rents & Leasehold Reform Bill
The long-awaited Leasehold Reform (Ground Rent) Bill 2021-2022 (the Act) received Royal Assent in early February. Following widespread public outcry caused by the leasehold scandal, industry experts have widely welcomed the legislation as a positive step in addressing leasehold reform. The new Act restricts ground rent charges on newly created long leases of houses and flats to an annual rent of one peppercorn, a token of no financial value.
However, the new law does not extend to existing property owners with onerous leasehold agreements. Even though, in the initial stages, MPs had passed an amendment (unopposed) that would have seen ground rents effectively eliminated for existing properties.
Implications for Leaseholders
Whilst the new law makes leasehold ownership fairer and more affordable, many experts are concerned that the reforms don’t go far enough and are flawed.
1 Does Not Apply to Existing Leases
The legislation only applies to new leases and doesn’t help existing leaseholders who face high, escalating ground rents.
Homeowners saddled with onerous ground rents will continue to struggle to sell their homes, as mortgage firms and banks often do not approve lending on such properties. Furthermore, properties for sale with new leases and a peppercorn ground rent are much more attractive.
2 Little Protection from Unscrupulous Landlords
Before the legislation became law, the Government removed an influential Lords’ amendment, imposing a duty on Landlords to inform tenants about the terms of the new Act.
Many experts fear that by removing this amendment, unscrupulous Landlords are free to coerce unwitting tenants into preserving existing rent arrangements instead of making statutory claims (which automatically reduce the rent reduction to a peppercorn).
3 No Timetable for Wider Reform
Whilst the Government has committed to further legislation, there’s no agreed timetable for implementing the second of their “two-part seminal legislation”.
The second instalment aims to make a freehold purchase or an extended lease easier and cheaper and could be a game-changer if implemented in full.
If a landlord contravenes the Act by demanding prohibited ground rent, they face a fine ranging from £500 – £30,000 per qualifying lease. Also, any eligible leaseholder has the right to apply to the First-Tier Tribunal in England for prohibited ground rent to be replaced with a peppercorn rent.
The Role Competition & Markets Authority (CMA)
Amid widespread public outcry, the CMA launched an inquiry into the activities of several high-profile companies in September 2020, reaching a landmark agreement in December 2021 with Taylor Wimpey and Countryside Properties. Both companies agreed to vary their crippling, doubling ground rents by linking them to the Retail Price Index and, in some cases removing the escalation clauses entirely.
Whilst the CMA is committed to “putting other housing developers under the microscope”, many homeowners who don’t have CMA agreements remain hard-pressed financially, spending money they haven’t got on trying to find solutions such as extending leases.
Businesses investing in ground rent portfolios and developers who receive income from ground rents will adapt. However, whilst new leaseholders welcome not having to pay ground rent, some believe that the legislation will increase house prices as developers look to maximise their investment. No doubt, time will tell whether CMA action or future Government reform will help those still in great need.
Our lawyers have many years of experience advising clients on problematic property issues, such as doubling ground rents and lease extensions. For further information or advice, please call us on 0800 056 6042. We’re here to help.
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