The Government has this year announced proposals for major reforms of the law concerning leasehold houses and flats. Most of the changes will relate to the procedure and the cost to tenants of extending their leases but the first step is legislation on the subject of ground rents which is now on its way through Parliament in the form of the Leasehold Reform (Ground Rent) Bill.
The Bill, when it becomes law, will provide that the ground rent payable on a new, long lease of a single dwelling, either a flat or a house, can be no more than a peppercorn (i.e. a token sum) per annum. There are to be a number of exceptions to this including statutory lease extensions under the existing legislation (the Leasehold Reform Act 1967 for houses and the Leasehold Reform, Housing and Urban Development Act 1993 for flats). Lease extensions granted under the 1993 Act already require a peppercorn rent.
It is of course possible for a landlord and leaseholder to agree terms for an extended lease on their own terms, without reference to the existing 1967 or 1993 legislation. In these circumstances the new Bill will again restrict the ground rent payable. The new, extended lease can continue to reserve ground rent at the rate which would have been payable under the lease being replaced but only until the date on which the replaced lease would have expired. Thereafter, the ground rent will again be restricted to a peppercorn per annum.
There will be an obligation on the part of a landlord, before entering a formal or informal renegotiation or extension of an existing lease, to inform the tenant of the changes being introduced by this Bill, once enacted, if the relevant sections relating to prohibited rents have not yet been brought into force, with penalties for landlords who fail to comply.
Of course, these changes are as yet only comprised in a Parliamentary Bill and are therefore subject to change. As things stand, the existing provisions of the Leasehold Reform Act 1967 for houses and Leasehold Reform, Housing and Urban Development Act 1993 for flats remain fully in force.
To speak to our Property Solicitor Peter Smart, call us on 0121 233 6912 or email firstname.lastname@example.org