The Leasehold Reform (Ground Rent) Bill Update

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The Leasehold Reform (Ground Rent) Bill was introduced in the House of Lords on 12th May 2021. A second reading took place on 24th May and on 20th July, The House of Lords will start further examination of the Bill.

The main purpose of the Bill is to reduce ground rents in most new, regulated, residential long leases (21 years and over) in England and Wales to a peppercorn.

The Bill is intended to apply to new leases and is not expected to apply retrospectively to existing leases. (However, the Bill may apply to an existing lease which is subsequently varied after the Bill comes into force if the variation results in a surrender and re-grant of the existing lease).

The Bill will not apply to business leases, statutory lease extensions, community housing leases and home finance plan leases. Initially, the Bill was not intended to apply to retirement properties however, it is now expected to also cover retirement properties (but not until after 1st April 2023, to give the retirement sector additional time to transition).

The Bill currently contains a wide definition of “rent”. This is designed to deter freeholders from charging what is effectively a ground rent by another name. It also bans freeholders from charging an administration fee for collecting a peppercorn rent.

If a freeholder fails to comply and collects a prohibited ground rent, they will be required to refund any such payment. Failure to do so will result in a fine of between £500-£5,000. (The penalty is expected to apply per lease, so freeholders of multiple properties could receive higher penalties if they breach the rules multiple times). Leaseholders are expected to have the right to apply to the First Tier Tribunal to recover any monies they may have paid which were not permitted.

Enforcement is expected to be the responsibility of local trading standards authorities. District councils are also expected to have enforcement powers.

We have no indication of when the Bill will become law at this stage. The Bill is the first of a two-part proposed legislation designed to implement leasehold reform. The second part will focus on changing the enfranchisement procedure. The government believes that the proposed legislation will lead to fairer, more transparent homeownership for future leaseholders.

Updates on further stages of the Bill will follow when announced.