Lawbite: Peppercorn rent, finally demanded

• United Kingdom

• Real estate

02-03-2022

The new Leasehold Reform (Ground Rent) Act 2022 limits the ground rent chargeable on the majority of new long residential leases to a peppercorn per year, in other words reducing ground rents to zero.

The Act became law on 8 February 2022, however the provisions which limit ground rents to a peppercorn are not yet in force. The Government has made a commitment to make regulations that will bring the Act fully into force within the next 6 months. Retirement property leases are an exception to this – they will not be subject to the Act before 1 April 2023 to allow the sector additional time to transition.

The Act will not apply to leases of multiple dwellings, business leases, statutory lease extensions of houses or flats, community housing leases and home finance plan leases.

New shared ownership leases must not reserve more than a peppercorn rent on the tenant’s purchased share of the property, however there are no restrictions on the rent payable on the landlord’s share.

A lease extended voluntarily may retain the rent from the original lease until the end of the original term, however the ground rent must reduce to a peppercorn from then on.

Trading standards and local authorities will be entitled to take enforcement action to recover overpaid rent and impose financial penalties of up to £30,000 on landlords found to be in breach.

Key points:

• The Act does not work retrospectively to reduce the ground rent on existing leases.

• Care should be taken with lease variations which give rise to a deemed surrender and re-grant as they are caught by the Act.