What does the Leasehold Reform (Ground Rent) Bill mean for leaseholders?

Quick read

On 12 May 2021, three and a half years after its consultation on reforming the leasehold system, the UK government published draft legislation to tackle the issue of escalating ground rents. This followed a long campaign in the press highlighting the difficulties faced by buyers who signed up to a lease with a ground rent that rose exponentially, meaning they had trouble raising finance or selling the property.

Once implemented, the new legislation will set ground rents of new residential long leases (21 years and over) at a peppercorn. The abolition of ground rents will not be retrospective.

Below is a quick overview of the Bill and what it means for leaseholders.

Are there any exemptions to the Bill?

There are a limited number of exemptions for social housing, shared ownership and sharia type arrangements where a leasehold structure is used for financing purposes. Retirement home leases are also exempted until 31 March 2023.

How does the Bill impact other rents?

One concern that has been raised with the Bill is that it appears to outlaw all rents, not just ground rents. As currently drafted, this would prevent landlords from charging service charge and insurance premiums if they are reserved as rent, something that will need to be addressed.

How will the proposed legislation be enforced?

Local Weights and Measures authorities and District Councils will be responsible for enforcement with financial penalties for breach ranging between £500 and £5,000. Where payment of a prohibited rent has been made, a landlord will be required to pay a refund to the tenant. Tenants will also have the right to apply to the First Tier Tribunal for a recovery order if they have been charged illegal rents.

How can you start to prepare?

The Bill is one of many promised reforms to the residential market to give greater protection to residential tenants. Residential developers will need to start factoring the loss of ground rents as an income stream into their calculations.