What is the Leasehold Reform (Ground Rent) Bill and what does it mean for leaseholders?

In her first article, Hannah Faith, Paralegal in Frettens’ expanding Leasehold Property Team, looks at the Leasehold Reform (Ground Rent) Bill that was published yesterday. She provides an overview of the bill, describing what it could mean for leaseholders.

What is the Leasehold Reform (Ground Rent) Bill?

Ground rent issues have come to the public’s attention over recent years with lenders becoming wary about increasing ground rents.

It is therefore welcome news that Parliament yesterday published the Leasehold Reform (Ground Rent) Bill which looks to pave the way for the start of proposed leasehold reforms.

UPDATE: The Leasehold Reform (Ground Rent) Act will come into force on June 30th 2022. Read our update article here.

What will the Leasehold Reform Bill do?

The Bill, which is currently going through the House of Lords, is set to introduce the Leasehold Reform (Ground Rent) Act 2021 which will prevent landlords from granting new leases that require the leaseholder to pay a ‘Prohibited Rent’ (essentially, any rent at all).

The effect of this is that new leases (including most lease extensions) being granted will only entitle the landlord to receive a peppercorn ground rent i.e. zero.

There are to be some exceptions where the Act will not apply but it will largely relate to long leases of flats granted for more than 21 years.  

What changes is the Leasehold Reform Bill set to make to Ground Rent?

Whilst statutory lease extensions already force landlords to reduce ground rent to a peppercorn, once it comes into force, the Act will mean that new Deeds of Variation or lease extensions granted on an ‘informal’ (voluntary) basis will be subject to the Leasehold Reform (Ground Rent) Act 2021 and will prevent landlords from demanding a ground rent.

What does the Leasehold Reform Bill mean for landlords?

Landlords who fail to comply with the new legislation could face financial penalties.  If a leaseholder inadvertently pays ground rent incorrectly demanded by a landlord, the leaseholder will be entitled to claim the rent back, with interest.

What does the Leasehold Reform Bill mean for Leaseholders?

Whilst there is a long way to go in terms of rectifying the difficulties many leaseholders face with their existing increasing ground rents, it is a hopeful offering which should protect purchasers of new leases as well as preventing landlord’s offering informal lease extensions which seek to introduce onerous ground rent terms.

What options do Leaseholders with onerous Ground Rent have?

The Leasehold Reform (Ground Rent) Act 2021 is not yet in effect and as the Bill is still going through the legislative process, it could be subject to change before it becomes actual law.

In the meantime, there are options available to leaseholders who have an onerous ground rent. As mentioned earlier, leaseholders can approach their freeholder to see if they are willing to enter into a Deed of Variation.

Alternatively, in the event the freeholder is unwilling to assist, leaseholders can force their freeholder to reduce the ground rent to a peppercorn (zero) via a statutory lease extension.

We discuss these options in further detail in our article about increasing ground rents, which can be read here.

UPDATE: The remaining leasehold reforms have now been passed as of May 2024, bringing major change to leasehold properties. Read about those changes here.

Leasehold Property Solicitors

Our specialist Leasehold Property Team is one of the largest in the region and are happy to discuss any ground rent or leasehold property related queries that this article may have raised. We have vast experience in dealing with the lease extension process from start to finish.

Please call 01202 499255 and Hannah or a member of the team will be happy to chat about your situation and your specific requirements.

We offer all new clients a free initial chat with one of our bright, knowledgeable lawyers.