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

The above Bill was introduced in the House of Lords on 12 May 2021.  The aim of the Bill is to address the rising ground rents that have arisen in recent years payable under long residential leases.  Historically annual ground rents payable under long residential leases have been a nominal sum.  In recent years many leases have included higher annual ground rents as well as provision for the rent to be reviewed at regular intervals throughout the term of the lease.   The leaseholder having paid a premium for the lease is then faced with an escalating annual ground rent which can often make a lease difficult to sell or mortgage the property going forward.

The purpose of the Bill is to make leasehold ownership fairer and more affordable for leaseholders by restricting the annual ground rent payable on a new long lease of a house or flat to a peppercorn or nil.  Generally the Bill applies in relation to leases of dwellings granted after the Bill is passed and becomes law.  Accordingly the provisions of the Bill are not retrospective.

An annual ground rent of a peppercorn is defined by the Bill as a permitted rent.  Any rent above the permitted rent is defined as a prohibited rent.  The Bill makes provision for leaseholders to recover unlawfully charged ground rent plus interest through the First Tier Tribunal.

Further, the Bill places a duty on trading standards authorities in England and Wales to take enforcement action where a prohibited rent has been charged.  Where a breach occurs, the enforcement authority has power to impose a financial penalty subject to a minimum of £500 and a maximum of £5,000.  The enforcement authority also has power to order the repayment of the prohibited rent together with interest to the leaseholder.

The Bill is the first part of two part legislation to reform the leasehold system.  We await the second part which aims to make the statutory process for enfranchisement and lease extension easier and more affordable.