Ground Rent Bill – Information for Developers

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Developers- do you still charge ground rents in your residential leases?

As part of the Government’s planned legislative programme for 2021/22, the Leasehold Reform (Ground RentBill was introduced last month into the House of Lords.

What does this mean for my developments?

If this bill becomes law, it will apply to all new leasehold flats and houses which are sold with the benefit of a lease of 21 years or more.

The bill proposes various restrictions, and developers should be aware of the following: –

  • Subject to a few limited exceptions which are mentioned below, ground rents on long residential leaseholds granted after the bill becomes law, will be capped to one peppercorn per year.   This means that ground rents will no longer have any financial value.

Developers therefore selling new properties and those with unsold stock remaining when the bill becomes law, need to make plans for this now.

  • After the bill becomes law, variations to existing leases, which result in a deemed surrender and regrant will be caught by the ground rent provisions. Developers with existing portfolios need to be alert, if approached for a lease variation, as to whether the request will result in a deemed surrender and regrant.
  • There are also provisions to try and stop any potential loopholes being exploited, for example, charges and other fees are not permitted for administering the peppercorn rent.

What is exempt from the scope of the bill?

  • Where buyers and sellers entered into a legally binding contract in relation to the grant of the lease (other than an option, or right of first refusal) before the bill became law, but completion will not take place until after the legislation is enacted.

If Developers wish to charge ground rents under leases where the property is due to completed after the law comes in, they will need to try and get as many of these plots under contract beforehand.

Developers should, however, be aware that if a purchase contract is varied after the bill becomes law, and ground rent was payable previously, the developer will no longer be able to charge ground rent under the lease.

  • business leases
  • statutory lease extensions of houses and flats
  • community led housing, and
  • home finance plan leases

Who will enforce the legislation if it becomes law?

  • Trading standards will enforce the legislation.
  • If a leaseholder is unlawfully charged ground rent, there is provision for them to apply to First-tier Tribunal to recover any such sums

What happens if I don’t comply?

A breach of the legislation will be a civil offence with a financial penalty of up to £5,000 per lease.  On large non-compliant developments, the financial implications for a developer could be huge.

What about existing leases with Ground Rents payable?

There is nothing to suggest that there will be any changes to existing leases where ground rents are payable (subject to our comments above about lease variations).

How long have I got to make plans for these changes?

There isn’t a fixed date yet for the bill to be passed and become law. Some sources are suggesting that it will be sometime after April 2023, but developers should keep abreast of the progress of the bill and consider the proposed legislation in their build timetables and the set up and marketing of new sites.

The ground rent cap on retirement property is dealt with separately and will not apply to retirement properties before April 2023.

If you require legal advice on your specific case, then our commercial property team may be able to help you. Reach out by calling 01903 229999 or by emailing us at info@bennett-griffin.co.uk.

Disclaimer: Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.