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Leasehold Reform – Is there a fair balance?

The storms of February 2022 blew in the arrival of The Leasehold Reform (Ground Rent) Act 2022 (“the 2022 Act”) which received Royal Assent on 8 February 2022. The provisions of the Act are expected to commence in 6 months. It puts an end to ground rents for new, qualifying long leasehold properties in England and Wales with rents being fixed to an annual rent of one peppercorn.

The Act also bans freeholders from charging administration fees for collecting the peppercorn rent. Breaching these rules carries the risk of a civil penalty of fine of up to £30,000. Any unlawfully charged rent can also be recovered through the Tribunal and Trading Standards. The Act is not retrospective, and does not itself remove ground rents from existing leases. However, there is an ongoing investigation by the Competition and Markets Authority into existing ground rents in leases in the context of mis-selling and onerous lease terms.

This is the first of the steps mentioned in the Government’s plans to reform residential leasehold law and enfranchisement announced in January 2021. There was a feeling since the initial flurry of anticipation that an ominous pause button had been pressed. However, there seems to be now some energy behind reform with the introduction of the 2022 Act and a further Government paper entitled “Reforming the Leasehold and Commonhold Systems in England and Wales”. The latest paper invited views on proposals for reform as regards access to enfranchisement and the right to manage. In particular, the Government sought views on the following proposals:

• Increasing the non-residential limit for a building which might qualify for a collective enfranchisement claim and Right to Manage to from 25% to 50%.

• Introducing a prescribed non-residential limit (50%) for a building which might qualify for an individual freehold claim.

• Introducing a right, which might be exercised by tenants making a collective enfranchisement claim, to compel the landlord to take leasebacks of flats held by those tenants not participating in the collective claim.

• Making changes to Commonhold a form of ownership allowing the owners of a multi occupancy building and interdependent building to own the freehold. This was first introduced in 2002 but there has not been the level of take up as hoped and changes are now being proposed to this ownership to encourage its use.

The implication of such changes would be render vulnerable freeholds of a class of buildings currently not caught. The Government maintains that it hopes to strike a balance of making enfranchisement easier and cheaper for tenants whilst acknowledging the financial interests of the landlord. However, we would question whether that balance would be maintained if these proposals are introduced. The consultation has now ended and all we can now do is watch this space.

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