Leasehold Reform (Ground Rent) Act 2022 – LRGRA2022 – The Act.

South East Leasehold 15.3.22

Leasehold Reform (Ground Rent) Act 2022 – LRGRA2022 – The Act.

This Act will affect Freeholders granting non-statutory lease extensions and must be adhered to to avoid fines. Existing ground rent streams will no be affected.

In brief – When the Act comes into force shortly Freeholders cannot increase or vary the ground rent on non-statutory lease extensions. (See point 5 below).

Main Points

1. The Act is the first part of a 2 part Leasehold Reform.
2. Applies to new leases and non-statutory lease extensions. Statutory lease extensions are peppercorn anyway.
3. Has received Royal Assent (8^th February) but not yet in force – no specified date as yet but imminent and within 6 months of this date.
4. Main purpose is to limit ground rent on new or non-stat extended leases to a peppercorn.
5. For non-statutory lease extensions, the peppercorn only comes into force after the original term is complete so the existing ground rent continues to be charged for the existing term but cannot be altered – it is capped.
6. The Act bans freeholders from charging administration fees for collecting a peppercorn rent.
7. The Act does not apply to retirement properties until 1 April 2023.

Important aspects for Freeholders to consider

1. A variation to a lease that would be considered a surrender and re-grant such as an increase in the demise, extending term or varying ground rent will fall within the scope of the Act regardless of whether a premium is paid. Landlords must act carefully when considering variations to leases as they may inadvertently be caught by the Act and the ground rent reduced to a peppercorn.
2. Sanctions for non-compliance are fines of between £500 and £30,000. Further, tenants have right to apply to the First-Tier Tribunal to recover prohibited rents that have been paid.