Sajid Javid, the then Secretary of State for Housing, Communities and Local Government, announced a “crackdown on unfairly sold practises” in 2018, which included lowering ground rents on new long leases to zero and collaborating with the Law Commission to make the process of purchasing a freehold or extending a lease of a flat “much easier, faster, and cheaper.”
According to information presented by the government during the 2018 Consultation, the ban would go into effect immediately upon approval of the legislation, with no transition period.
Although the Leasehold Reform (Ground Rent) Act 2022 (LRGRA 2022) has now gained Royal Assent, it is not yet fully operational. When it is, the LRGRA 2022 will go into effect, limiting the amount of ground rent that can be paid under a new long residential lease will equate to a peppercorn per year, thereby making it zero, as promised.
What Leases Are Affected By The LRGRA 2022?
LRPGRA 2022 applies to a “regulated lease”. To be a regulated lease, the lease must be:
A long lease of a single dwelling, i.e. one granted for more than 21 years; granted for a premium; after the relevant commencement date; and which is not an “Excepted Lease”.
Whether or not a premium is paid, if a variation to a lease is made that would represent a presumed surrender and re-grant of the lease, such as changing the size of the land demised, extending the length of the lease, or changing the rent pattern, the new lease will become a regulate lease. Landlords must be cautious when considering lease amendments, as they may be caught by the LRGRA 2022 accidentally.
Expected Leases are:
Certain business leases—those granted for business purposes where the nature of the business purpose is such that using part of the premises as a dwelling significantly contributes to that, and the parties give each other notice that they intend to use the lease for business purposes at or before the time the lease is granted. Regulations governing the format and substance of such notices may be enacted. A trade, profession, or employment that is not a home business is referred to as a business.
Statutory lease extension of a house or flat- the latter of which will be granted with a peppercorn rent in any event.
Extension of a statutory lease on a house or flat, which will be granted with a nominal rent in any case.
Community housing leases, as well as any other requirements or rules imposed by the competent body.
The LRGRA 2022 prevents a landlord from asking a tenant to pay a prohibited rent under a regulated lease, and includes failing by a landlord to reimburse the prohibited rent to the tenant within 28 days of receipt.
Non-compliance might result in sanctions
Trading Standards Authorities can punish a landlord between £500 and £30,000 if they demand a group rent in violation of the LRGRA 2022 and/or any payment is not returned to the tenant within 28 days of receipt.
Furthermore, tenants have the ability to file a claim with the First-tier Tribunal to recover unpaid unlawful rentals.
When Does The LRGRA 2022 Come Into Fruition?
This will be accomplished in stages.
Those sections requiring the creation of regulations, as well as those relating to interpretation and other general rules, came into effect on February 8, 2022.
The key measures, such as the ground rent restrictions, will take effect on a date set by the Secretary of State in regulations. These elements may be implemented on different days depending on the type of lease.
The rules for senior home leases will not take effect until April 1, 2023, to give the retirement industry time to react.
This is not legal advice; it is intended to provide information of general interest about current legal issues.