216: Residential ground rents to be capped at a peppercorn

On 12 May 2021, the government introduced the Leasehold Reform (Ground Rent) Bill into the House of Lords.

This much anticipated Bill will implement the government’s target of capping ground rents in long residential leases at a peppercorn. The Bill also prohibits the charging of administration charges in relation to those peppercorn rents.

This is a significant step towards overhauling the residential leasehold system in England and Wales which will have large scale implications for developers and tenants.

Subject to exceptions, the Bill applies to leases of residential dwellings granted after commencement. Therefore it will apply prospectively only, and the threats to wind back the clock on existing leases seem to have been withdrawn.

However, the Bill’s provisions will not apply to leases granted after commencement where buyers and sellers entered into a legally binding contract in relation to the grant of the lease (other than an option or right of first refusal).

There has been speculation that this could result in a rush of residential agreements for lease being entered into before enactment, although no further scheduled dates are yet in place for future readings to finalise the legislation.

Certain types of leases are excepted from the ground rent restrictions, including business leases, statutory lease extensions of houses and flats, community led housing and home finance plan leases. Certain additional rules will apply to shared ownership leases. The Bill will also include leases created by a variation of a lease that results in a deemed surrender and regrant.

A breach of the ground rent restrictions will be a civil offence with a financial penalty of between £500 and £5,000. The Bill places a duty on trading standards in England and Wales to enforce the provisions, and will be enforceable against both current and former landlords.

We expect the Bill to take effect for different categories of leases at different times and we will track the Bill’s progress through Parliament with interest.