Leasehold Reform (Ground Rent) Bill – Update following the second reading

We reported on the draft Leasehold Reform (Ground Rent) Bill (the "Bill") laid before the House of Lords in our article of 26 May 2021 here. The Bill had its second reading in the House of Lords on 20 July 2021.

The key changes to the original draft bill as a result of that reading are as follows:

  • Clarification has been made so that an affected lease is a long lease which:

    • must be of a single dwelling; and

    • must be granted for a premium, being any consideration in money or money's worth for the grant of a lease, other than rent.

  • Clarification is made so that ground rent does not include "a sum expressed to be payable in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters" which are reserved as rent in the lease so that service charge or insurance rent can still be charged.

  • The introduction of a duty to inform a tenant of the changes introduced by the Bill. The intention is to prevent lease extensions before the Bill comes into effect.

  • An increase in the maximum penalty payable by a landlord for requiring a tenant to pay a prohibited ground rent or breaching the duty to inform as referred to above from £5,000 to £30,000.

There was much debate around the unintended consequence of an implied surrender and re-grant by virtue of extending the term or increasing the demise and the landlord not being able to recover more than a peppercorn rent going forward. However, no amendments were agreed in this regard and if not addressed as the Bill progresses through parliament landlords will need to be alive to the potential issue and grant a separate lease of additional space rather than increasing the demise pursuant to the original lease.

The Lords also debated the issue of the significant resource required in respect of managing complex schemes and concerns around "orphan freehold syndrome" without amendments being agreed. A number of Lords also highlighted the impact of increased responsibility as regards the Building Safety Bill and a lack of regulation of property managing agents. 

As previously mentioned, for many residential developers, the Bill consolidates practices that they already have in place.

The third reading of the Bill in the House of Lords is set for 14 September 2021.

This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.