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No rent or no landlord?

The Leasehold Reform (Ground Rent) Bill was recently introduced into the House of Lords and is the first, of many such changes that are coming, to reform landlord & tenant law. This follows the Government’s stated objective of making the relationship between freeholders and long leaseholders, fairer.

The bill will no doubt be welcome news for some, particularly those buying a new leasehold home or renewing the lease of an existing one. This is because the principle object of the bill, is to ban the collection of a ground rent, of anything more than a peppercorn, on any long lease of a house or flat – or dwelling, as the Bill refers – granted after the Bill becomes law.

So what’s the detail?

First, certain ‘excepted’ leases will not be affected. These include, business leases (understandably -and watch for leases that permit home working), statutory lease extensions of both houses and flats, (which have their own rent constraining provisions), Community housing leases, home finance plan leases (e.g. equity release schemes), and a rent to buy lease. All these terms are defined in the Bill.

Secondly a voluntary lease extension, i.e. one granted by negotiation between the parties, will not be an excepted lease and as such will be caught by the new law. The new lease may reserve a rent equal to the old lease rent (including, presumably, what are now regarded as unreasonable rent reviews) but only until the date the old lease would have expired. After that, its back to a peppercorn for the remainder of the new lease term. Plainly this provision is included so as not to retrospectively penalise a landlord – or deter the landlord form granting such a lease renewal, but the bill will not help those leaseholders who have entered into a toxic lease, as they have become known, where the lease contains excessive ground rent review provisions. That’s for tomorrow.

Thirdly, a rent contrary to the new law, will not be enforceable and the regulated rent will be substituted for it. Understandable. In fact, the Bill addresses what will happen in the event that the parties enter into an agreement contrary to the new law.

What about the sanctions? The Bill makes it an offence where a landlord requires a tenant to make a payment of a prohibited rent (my emphasis). So, reserving such a prohibited rent in the lease is not the crime, it seems, only requesting payment. Either way, a rather draconian outcome for breaching its provisions, when one would think that simply making the payment unenforceable, would be enough punishment. Those collecting rents will need to be careful too.

The enforcing authority is the local weights and measures authority (or the local council put simply) who can impose a financial penalty on the offender of an amount of its choosing – not less than £500 nor more than £5000 – if it is satisfied beyond a reasonable doubt that the law has been breached. The local weights and measures authority must enforce the law but any weights and measures authority elsewhere, may. The Bill outlines the procedure that must be followed including the service of notices. The First Tier Tribunal may make a recovery order in respect of unlawful rent paid. Enforcement of an order for recovery is by the County Court. Interesting to note, however, that so far as I am aware, there has never yet been a criminal prosecution in respect of a breach of the provisions of section 1 of the Landlord & Tenant Act 1987 – where the prosecuting authority is also the district council. There are limitation periods applicable to the prosecution process.

Whether the Bill becomes law, and when, of course is open to speculation. But it must be of concern that banning new ground rents will leave the freeholder with no financial interest in the investment and as such, no desire to enforce the covenants in the leases, to the detriment of other leaseholders. And ultimately, maybe, to the freeholder simply giving up on the building. And perhaps go missing. And we all know the consequences of that, on the saleability of a flat (or house) and the difficulty and costs associated with restoration. Would not capping new rents, be better?

Watch this space. And watch your drafting – meantime!

Mark Adcock
Solicitor in private practice and former Law Commission lawyer.

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