Peppercorn Rent for your Property?

Blink and you missed it, the biggest change within property law for a generation has happened: The Leasehold Reform (Ground Rent) Act 2022.

Although the grandeur of the change is not matched by the modest title, the impact on you as either a landlord, leasehold owner, developer, or purchaser moving forward cannot be underestimated.

The purpose of the Act is to restrict the level of ground rent a landlord can obtain from the majority of new residential leases in England and Wales. The reduction is to a token peppercorn rent per year: thereby, in essence, reducing the financial value of the lease to zero.

Prior to the Act, there was no cap on the level of ground rent that a landlord could charge a leasehold owner, however from Summer 2022 the reduction will be enforced. The Act will not be applied retrospectively and therefore will not be applied to current leasehold agreements.

The impact on you and your position, no matter which standing you find yourself in, will have to be carefully considered moving forward: –

The Act will have significant impacts for developers and purchasers moving forward, and developers may wish to act now and pre-empt the changes by abolishing ground rents moving forward. In addition, current development schemes will have to be carefully managed moving forward as schemes which are half completed when the Act is enforced will likely result in certain properties paying ground rent and others which do not.

On the contrary, the pending changes will have tactical advantages for some purchasers who may wish to wait until Summer 2022 for when a higher ground rent cannot be enforced. A point to note for purchasers, and landlords, is the penalties which can be applied if the Act is not followed, as steep fines can be enforced if a breach is found to have occurred. The enforcement of a breach can be applied against past and current landlords: therefore, when purchasing a property subject to a long leasehold agreement, it would be prudent for a purchaser to obtain confirmation regarding the past liability.

Landlords moving forward will also have to tread carefully as to not inadvertently surrender and then re-grant a lease on which ground rent is payable but not subsequently enforceable. This would leave the landlord in an unenviable position in which a breach of the lease cannot be enforced.

The Government has made it very clear that this is the start of a series of changes to residential leases and no matter which position you find yourself in, the key is to be proactive.

For more information, please contact Andrew Dickinson (0113 225 8811 or AndrewDickinson@chadlaw.co.uk) or your usual Chadwick Lawrence contact.