The Leasehold Reform (Ground Rent) Bill ('the Bill') was introduced on 13 May 2021. We considered the proposals in our articles of 18 January 2021 and 28 May 2021.
Having debated and agreed proposals and amendments, the House of Lords published its report on 20 July 2021.
As suspected, it was made very clear that the Bill will not apply retrospectively: it will only apply to leases granted on or after the date the Bill comes into force. Current tenants will not be able to pay a capital sum to reduce existing ground rents to a peppercorn.
The Bill has been amended to clarify that it is only intended to apply to a lease of a single dwelling; there is no intention for the Bill to protect a lease of multiple dwellings to a corporate tenant.
It is now clear that the Bill will not apply to a tenant who has not paid a premium and instead pays a market rent over the term. 'Regulated' leases will only be those granted for an initial premium.
There were lengthy discussions about a deemed ‘surrender and regrant’ e.g. where a landlord and tenant agree to change key terms of the lease, such as the extent of the demise or the length of the lease term. This could be treated in the eyes of the law as the grant of a new lease and inadvertently place the 'new' lease under the provisions of the Bill.
There were concerns that trying to legislate for workarounds would 'undermine the whole purpose of the Bill', but equally there should be some protection for landlords who did not know that the Bill would have the effect of ‘peppercorning’ the rent because they informally changed the term of the lease.
It was acknowledged by the House that it was an untidy situation and could cause disparity if one party had more knowledge than the other. However, no amendment was passed and as it stands it looks like a surrender and regrant will be caught by the provisions of the Bill. There is likely to be further discussion in this area.
A new amendment provides that landlords will have a duty to advise tenants of the changes introduced by the Bill before entering into a negotiation or extension of an existing lease.
There were concerns that landlords would rush tenants into lease extensions before the sections of the Bill relating to prohibited rent come into force, hoodwinking them into what they proposed was a 'good deal', with tenants unaware that this would deprive them of the opportunity to enter into a new lease when the Bill was in force. Penalties will be imposed on landlords who take advantage of tenants in this way. There will be mitigation if a landlord was ignorant of the provisions, but despite this, they will still be subject to a minimum fine of £500.
A third reading will take place in the House of Lords.
It was mentioned that a second bill will be developed during the course of this Parliament, in addition to the Ground Rent Bill: it is intended to be a comprehensive leasehold reform bill which will aim to end unfair practices in the leasehold market, ensure that consumers are protected from abuse, and drive commonhold ownership.
If you have any questions about this article, please contact our Real Estate team.
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