A brief outline
Firstly, the below is based upon my understanding of the Act, but I accept no liability for any errors or omissions – Leaseholders must rely upon what is contained in the Government Guidance Note referred to later and obtain suitable professional advice, as appropriate to their individual circumstances
The Act came into force on 30 June 2022
It restricts the Ground Rent payable under new long residential Leases (with certain limited exceptions) to a peppercorn (i.e. there will be no financial payment as Ground Rent)
In the cases of new long leases of retirement homes (i.e. those where occupation is restricted to persons aged 55 or over) the provisions of the Act will not come into force until 1st April 2023 at the earliest
In the event of breaches of the provisions of the Act, penalties and fines between £500 and £30,000 can be imposed
Points to be aware of:-
1. the Act does not affect the Ground Rent payable under existing Leases (i.e. Leases granted before 30 June 2022)
2. a buyer of an existing Flat (i.e. the Lease has already been granted) will not benefit from the Act and the Ground Rent payable under the Lease of that Flat will continue to be payable
How does the Act affect voluntary Lease extensions?
Where an existing Lease is extended on a voluntary basis between the Landlord and the Leaseholder then:-
(1) the Ground Rent payable under the existing Lease will (if the Landlord so requires) continue to be payable, until the term of the original Lease comes to an end (so the Leaseholder could still be paying Ground Rent for another, say, 70 years or before it reduces to zero)
(2) as from the date the original Lease Term ends and throughout the extension period added to the original Lease Term, the Ground Rent payable must be zero
By way of comparison, if the Lease was extended using the statutory procedure, then as from completion of such Extension Lease the Ground Rent payable throughout the term will be a peppercorn (i.e. it will be zero from day 1)
The Government have issued a Guide in relation to the Act, and it can be found via this link:
Ground Rent Reviews under Existing Leases
As mentioned above, Existing Leases do not have the benefit of the Act
However, Leaseholders should be aware of the following:-
Certain rent review clauses in the Leases of Taylor Wimpey and Countryside leasehold homes were declared unlawful by the Competition and Markets Authority ("CMA")
As part of enforcement action launched in September 2020 by them against Taylor Wimpey, Countryside Properties, Barratt Developments and Persimmon Homes, the CMA informed Taylor Wimpey and Countryside Properties that the use in their Leases of rent review clauses which provide for the Ground Rent to double every 10 or 15 years broke consumer protection law.
The CMA requested that such rent review provisions were removed by such companies from all existing Leases and that such companies also agree not to use such terms in future Leases
The CMA have also secured various undertakings from Developers and Freeholders in relation to Ground Rent reviews (but it must be noted the undertakings provided to the CMA were on a voluntary basis and without any admission of wrongdoing or liability) including the following:-
Aviva
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to remove from leasehold contracts certain clauses which were doubling the Ground Rents payable by Leaseholders. It would also remove terms which were originally doubling clauses and have been converted into Retail Price Index based Ground Rent terms – where Aviva is the current freeholder of the leasehold properties in question, the Ground Rents payable under such Leases will revert to the original amount payable when the Lease was first granted – those Ground Rents will no longer increase over time
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to repay to homeowners who were affected by these doubling Ground Rent clauses – where there has already been an increase in the Ground Rent payable under such Leases, Aviva would refund such Leaseholder the sums paid by them by way of increased Ground Rent
Countryside Properties
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to remove from their existing Leases provisions which cause Ground Rents to double upon review
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to remove from such existing Leases provisions which originally provided for the Ground Rent to double upon review, but which were subsequently converted to provide for the Ground Rent to increase in line with the Retail Prices Index
Those Leaseholders who are affected by this undertaking will now find that their Ground Rent will not rise at all, but will remain set at the level payable when the Lease was granted – I wonder how many Leaseholders are aware of this?
Countryside have also made a commitment that where it has already sold off the Freehold interest in the building (and is therefore no longer in a position to make these changes) then it will assist in getting such provisions removed at no cost to the Leaseholders
Taylor Wimpey
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to remove from Leasehold contracts certain clauses which caused the Ground Rents payable by Leaseholders to double every 10 years.
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to address Lease terms which were originally doubling clauses, but which have been converted into Retail Price Index ("RPI") based reviews
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that the Ground Rent for affected Taylor Wimpey Leaseholders will remain at the amount it was when the property was first sold and will not increase over time
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where Taylor Wimpey has sold the freehold, and cannot remove the doubling or RPI clauses itself, it will help get them removed at no cost to Leaseholders.
The sting in the tail is that Taylor Wimpey will not be contacting Leaseholders in relation to this, so Leaseholders of Taylor Wimpey Flats will need to be pro-active and contact Taylor Wimpey for more information and to make application, via the following links:-
As far as I am aware none of these undertakings have been widely publicised and are unlikely to have found their way into the knowledge of many Leaseholders
In all of the above cases, Leaseholders should not wait, but contact their Landlord to seek the relevant changes to their Leases