Article / 27 May 2021

A guide to The Leasehold Reform (Ground Rent) Bill: what you need to know

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Gateley Legal

The Leasehold Reform (Ground Rent) Bill (“the Bill”) was introduced in the House of Lords on 12 May 2021 and the second reading took place on 24 May 2021. 

This Bill is intended to be the first phase of the Government’s commitment to leasehold reform. The Bill has been expected for some time now and is particularly important to housebuilders and leaseholders alike. 

The main purpose of the Bill is to reduce ground rent for “Regulated Leases” to a peppercorn. Whilst it is in the initial stages within Parliament, the Bill may undergo changes, but the key areas worth highlighting so far are set out below:

Regulated Leases

The Bill applies to “Regulated Leases”. A Regulated Lease intends to capture a long lease of a dwelling completed at any time after the Bill comes into force, subject to four key exceptions. 
These four “excepted leases”, are: 

  1. Business leases;
  2. Statutory lease extensions; 
  3. Community housing leases; and 
  4. Home finance plan leases. 

Prohibited Rent 

The Bill seeks to limit rent charged in Regulated Leases to a “Permitted Rent”, with any other rent charged being a “Prohibited Rent”. In most scenarios, this Permitted Rent will be a peppercorn. However, additional provisions have been incorporated into the Bill to address the particular circumstances surrounding shared ownership leases and voluntary lease extensions. 

No administration charges will be payable in relation to the collection of this peppercorn ground rent. 

One of the key aspects of the Bill, which was raised numerous times at its second reading, is the wide definition of “rent”. This has been cited as an attempt to deter landlords from disguising ground rent as another form of payment, rather than it intending to apply to other legitimate payments associated with the maintenance and upkeep of a building . However, the wide drafting used has scope for misinterpretation and it would be helpful if this was further clarified in future drafts of the Bill before enactment.

Enforcement and penalties

Enforcement of the Bill will be the responsibility of the local trading standards authorities. District Councils may also enforce the provisions of Bill (together these bodies are referred to as the Enforcement Authority). 

The Enforcement Authority may impose fines ranging from £500 to £5,000 for breaches of the Bill. There are also provisions included within the Bill for recovery of payments of Prohibited Rent from the landlord. 
Enforcement action may be taken against current and previous landlords. 

What next? 

We do not have an indication of when the Bill will become law as yet.  However, the Bill does set out that the provisions of the Bill will not apply to retirement properties until 1 April 2023 at the earliest. This is in recognition of the fact that the initial consultation documentation regarding the cap on ground rents was not going to apply to retirement properties. 

There was an acknowledgement in the second reading that this Bill represents “phase one” of the Government’s leasehold reform programme. There are a number of other areas of the leasehold reform programme that were part of the Government’s consultation, but have not yet been addressed, such as:

  • the ban on leasehold houses;
  • dealing with existing leasehold interests;
  • ensuring that maintenance charges are fairer and more transparent; 
  • creating a consistent approach to the provision of leasehold information; and 
  • reinvigoration of commonhold. 

This Bill represents the start of what could be a significant period of leasehold reform.

Access The Bill and corresponding Explanatory Notes for further information.

Do you require further guidance?

It is imperative that housebuilders seek specialist advice to ensure that their leases comply with the Bill going forwards. Please speak to your usual Gateley contact for further guidance, or alternatively, get in touch with one of our experts whose details are below.