The new Act (as from30/06/2022) restricts ground rent in any new long lease of a single dwelling at a premium (a “regulated lease”)* to a peppercorn.
It apparently affects only:
- new leases
- granted of a single dwelling,
- for a premium
- leases which are not “excepted leases”, which are:
- business leases
- statutory lease extensions for houses and flats (under Leasehold Reform Act 1967 and Leasehold Reform, Housing and Urban Development Act 1993)
- community housing leases (where Landlord is a community land trust)
- Home Finance Plan Leases (regulated home reversion plans and “rent to buy” arrangements)
Leases pursuant to a contract which was entered into prior to the new legislation coming into force may still be granted on the terms agreed under the Contract. This is more likely to be an issue with New Build properties where the sales are exchanged several weeks or even months prior to completion.
It is interesting to note that the Act abolished administration charges related to the collection of ground rent restricted to one peppercorn.
Special rules apply to:
- Replacement leases (e.g. pre-commencement leases)
- Deemed surrender and regrant by variation. However, if the variation, deemed to be a surrender and regrant, is pursuant to the tenant’s exercise of their statutory right to extend the Lease by 90 years, under the Leasehold Reform, Housing and Urban Development Act 1993; the ground rent for the extended term will be reduced to a premium, as required under that Act.
- Shared ownership leases where tenant’s share is below 100%. For example, a landlord can charge rent on their retained share of the equity however, should a leaseholder acquire a 100% share in the property, the ground rent must reduce to a peppercorn.
Pertinent for the social housing sector:
Over 55 retirement home leases: the restriction only comes into effect 01/04/2023 and RPs should start considering their precedent lease in the context of surrenders and regrants.
Right to Buy: Section 19 of the Act makes amendments to Part 5 of the Housing Act 1985 in the context of right to buy for secure tenants.***
* 1Regulated leases
(1)In this Act a “regulated lease” means a lease which meets the following conditions:
- it is a long lease of a single dwelling,
- it is granted for a premium,
- it is granted on or after the relevant commencement day, otherwise than in pursuance of a contract made before that day, and
- when it is granted,
it is not an excepted lease (but see subsection (5)).
(2)The “relevant commencement day”, in relation to a lease, is the day on which this Act comes fully into force in relation to leases of that kind (see section 25).
(3)For the purposes of subsection (1)(c) “contract” does not include an option or right of first refusal.
(4)In this Act 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.
(5)Where there is a deemed surrender and regrant by virtue of the variation of a lease which is—
- a regulated lease, or
- a lease granted before the relevant commencement day,
subsection (1) applies as if paragraph (b) were omitted.
** 5 Permitted rent: shared ownership leases
(1)This section applies to a regulated lease which is a relevant shared ownership lease.
(2)The permitted rent is—
- in respect of the tenant’s share in the demised premises, a peppercorn rent;
- in respect of the landlord’s share in the demised premises, any rent.
(3)A shared ownership lease is a lease—
- granted on payment of a premium calculated by reference to a percentage of the value of the demised premises or the cost of providing them, or
- under which the tenant (or the tenant’s personal representatives) will or may be entitled to a sum calculated by reference, directly or indirectly, to the value of those premises.
(4)A relevant shared ownership lease is a shared ownership lease where the tenant’s share in the demised premises is less than 100%.
(5)The tenant’s share in the demised premises is the tenant’s initial share in the demised premises, plus any additional share or shares in the demised premises which the tenant has acquired.
(6)The landlord’s share in the demised premises is the share in the demised premises which is not comprised in the tenant’s share.
(7)Where a shared ownership lease does not reserve separate rents in respect of the tenant’s share in the demised premises and the landlord’s share in the demised premises, any rent reserved is to be treated as reserved in respect of the landlord’s share.
(8)This section does not apply to a regulated lease if section 6 applies to it.
*** 19Amendments to Housing Act 1985
(1)Part 5 of the Housing Act 1985 (right to buy) is amended as follows.
(2)In section 127(3)(c) (assumptions to be made on valuation of dwelling) after “£10 per annum” insert “or, if the lease would be a regulated lease within the meaning of the Leasehold Reform (Ground Rent) Act 2022, the rent permitted by that Act”.
(3)In paragraph 11 of Schedule 6 (terms of lease granted pursuant to right to buy) after “£10 per annum” insert “or, if the lease is a regulated lease within the meaning of the Leasehold Reform (Ground Rent) Act 2022, the rent permitted by that Act”.
