Leasehold Reform (Ground Rent) Act 2022

Commentary on provisions of the Act

Section 1: Regulated leases

22. Generally, this Act applies in relation to leases of single dwellings granted on or after commencement of the relevant provision of the Act. This includes leases created by virtue of a variation of a lease which results in a deemed surrender and regrant.
23. This Act does not apply to long residential leases of single dwellings where the leaseholder does not pay a premium for the granting of the lease. However, subsection (5) states that where there is a deemed surrender and regrant of either a regulated lease or a pre-commencement lease, the general provision that a regulated lease is one for which a premium has been paid does not apply. This is intended to cover circumstances such as a variation to a lease to address a drafting error, where payment of a premium may not be required. This ensures leases remain regulated by the Act after such a variation. 
24. Additionally, where, prior to commencement, buyers and sellers have entered into a legally binding contract in relation to the grant of the lease (other than an option or right of first refusal), the provisions do not apply. The provisions will additionally not be applicable to some exceptions listed in section 2.

Section 2: Excepted leases

25. Section 2 sets out the types of leases that are exempt from the Act. The exceptions are:
    • Business leases where:
      • the lease expressly permits business purposes without further consent needed of the landlord;
      • the nature of the permitted business purposes is such that the use of the premises as a dwelling significantly contributes to the business purposes; and
      • the landlord and tenant exchange written notices at or before the lease is granted confirming the intention to use and continue to use the premises for the business purposes set out in the lease.
    • The Secretary of State may make further provision about the form and content of the notices required to be exchanged in regulations, and has done so in the Leasehold Reform (Ground Rent) (Business Lease Notices) Regulations 2022 (SI 2022/578).
    • Business includes a trade, profession or employment but not a home business under the Landlord and Tenant Act 1954.
    • Statutory lease extensions of houses, under Part 1 of the Leasehold Reform Act 1967, or of flats, under Chapter 2 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993.
    • Community housing where it is a community housing lease and where it meets any further conditions specified in regulations made by the relevant authority. A community housing lease is where the landlord is a community land trust (as defined in section 79 of the Housing and Regeneration Act 2008), or it is a dwelling in a building controlled or managed by a co-operative society (as set out in paragraph 2B of Schedule 14 to the Housing Act 2004).
    • Home finance plan leases which also meet any conditions specified in regulations made by the Secretary of State. A home finance plan lease is: 
      • A lease granted in connection with a home reversion plan under Chapter 15A of Part 2 of the Financial Services and Markets Act (Regulated Activities) Order 2001, or 
      • A lease granted by a finance provider to a home buyer in connection with a "‘rent to buy’" arrangement. A ’"rent to buy’" arrangement is where a person buys a freehold or leasehold interest in land (or an undivided share of such an interest) from a finance provider over a defined period by means of payment of a rent.

Section 3: Prohibited rent

26. Section 3(1) prohibits any landlord (or person acting on the landlord’s behalf) of a regulated lease to require a tenant (or tenant’s guarantor) to make a payment of a prohibited rent. A prohibited rent is defined in subsection (4) as any rent that exceeds the permitted rent as defined in sections 4 to 6.
27. The meaning of ‘"require a tenant to make a payment of prohibited rent"‘ is explained in subsection (2). A landlord requires a tenant to make a payment of a prohibited rent if they (or a person acting on their behalf) ask the tenant for payment or having received payment, fail to refund it within 28 days.
28. Those subsections taken together mean that a landlord or person acting on the landlord’s behalf is prohibited from asking the tenant for a prohibited rent and must, if they receive a prohibited rent, refund it within 28 days after its receipt.
29. Section 3(3) explains that in this section references to landlord includes a person who has ceased to be a landlord, and references to tenant include a person who has ceased to be a tenant, a person acting on behalf of a tenant or a tenant’s guarantor.

Section 4: Prohibited rent: general rule

30. Generally, the permitted rent is an annual rent of one peppercorn. The effect of a peppercorn rent is to restrict the rent so that no money can be charged or paid as rent under this Act. 

Section 5: Prohibited rent: shared ownership leases

31. Section 5 makes special provision for shared ownership leases in which the landlord retains a share.
32. Section 5(2) provides that for the tenant’s share in the premises, the only permitted rent is a peppercorn rent but that landlords can continue to charge any rent on their share.
33. Since April 2006 it has been a condition of all shared ownership schemes funded by Government that the amount of rent and any annual increases is capped. This is also usually the case for shared ownership properties delivered through agreements entered under section 106 of the 1990 Town and Country Planning Act. Providers are generally required to cap rent at 3% of the capital value of their retained equity, with an overall target of 2.75%. Rents can vary across different schemes. The rent on the unsold share increases over time. Annual rent increases are also limited as a condition of grant funding to the Retail Price Index (RPI) plus 0.5%. By way of example: if a tenant has a total share of 60% of the value of the premises and the landlord has a share of 40% of the value of the premises, the landlord would be permitted to charge the tenant rent on their 40% share, in line with the above rent caps.
34. Section 5(7) provides that where the lease does not distinguish between rent on the tenant’s share and rent on the landlord’s share, any rent payable under the lease is to be treated as payable in respect of the landlord’s share.

Section 6: Permitted rent: leases replacing pre-commencement leases

35. Section 6 allows for rent other than a peppercorn rent in the case of non-statutory (‘"voluntary’") lease extensions, where a tenant is granted a lease that replaces a lease that was granted prior to commencement of the applicable provision of the Act (referred to as a "pre-commencement lease" – a term defined in subsection (8)(a)).
36. The permitted rent during the period up to the expiry date specified in the pre-commencement lease is a rent not exceeding the rent that would have been payable under the pre-commencement lease in respect of that period. The permitted rent for the period of the new lease following the expiry date specified in the pre-commencement lease is to be a peppercorn rent.
37. Subsection (5) makes provision for a case where a lease that is itself a replacement lease is replaced by a new lease. The permitted rent for non-statutory extensions of pre-commencement leases can apply to a replacement lease which includes some premises not demised by the pre-commencement lease (i.e. where there has been a deemed surrender and regrant to increase the property demised on a lease). 
38. The permitted rent for non-statutory extensions of pre-commencement leases can also apply to a replacement lease that does not extend beyond the end of the term of the pre-commencement lease. This includes a surrender and regrant of a lease where there is not a lease extension, such as to extend the extent of the demised property. Rent can continue to be charged at the existing rate on the balance of the term of the existing lease, while any extension to the lease may only charge a peppercorn rent.  
39. Subsections (6) and (7) makes provision for a case where the pre-commencement lease is a relevant shared ownership lease (as defined in subsection (9)).

Section 7: Term reserving prohibited rent treated as reserving permitted rent

40. The effect of section 7 is that any term in a regulated lease reserving a prohibited rent is replaced by a term reserving a permitted rent, which is generally a peppercorn rent unless section 5 or 6 applies.
41. The table in section 7 sets out what rent is to be substituted for the prohibited rent in each case.

Section 8: Enforcement authorities

42. Section 8(1) requires local weights and measures authorities (trading standards authorities) in England and Wales to enforce section 3 where a breach of that section occurs in their area and allows them to enforce section 3 elsewhere.
43. Subsection (2) allows a district council, which is not a trading standards authority, to enforce section 3 (both inside the council’s district and elsewhere in England). They are not however required to do so.
44. Subsection (3) explains that where a breach of section 3 occurs, the area in which it occurs is the area in which the premises under the lease are located. Where the premises are located on a local authority boundary, the breach is taken to have occurred in each of the areas in which the relevant premises are located.
45. Subsection (4) provides that the duty and powers to enforce section 3 conferred by subsections (1) and (2) are subject to section 9(8) which provides that an enforcement authority may not impose a penalty on a person if another enforcement authority has already imposed a penalty in respect of the same breach.
46. Subsection (5) defines enforcement authority, a term used throughout the Act (and the following sections of these explanatory notes) to refer to both local weights and measures authorities in England and Wales who have a duty to enforce and district councils that have a power to enforce.

Section 9: Financial penalties

47. This section allows the enforcement authority to impose a financial penalty on a person if the authority is satisfied beyond reasonable doubt that the person has breached section 3(1) by requiring a tenant to make a payment of a prohibited rent.
48. The amount of the financial penalty is at the discretion of the enforcement authority, subject to a minimum of £500 and a maximum of £30,000 (subsection 2).
49. A landlord who commits multiple breaches in relation to the same lease is generally only liable to one financial penalty. However, they will be liable for a further penalty if, having previously had a financial penalty imposed for an earlier breach, they then commit a further breach (subsection (3)).
50. Subsection (4) clarifies that for the purpose of subsection (3) ‘"landlord’" includes a person who has ceased to be the landlord.
51. Subsections (5), (6) and (7) deal with multiple breaches in relation to multiple leases. Where a person has committed one or more breaches in relation to two or more leases, an enforcement authority may choose to impose a single financial penalty in respect of all those breaches. If a single penalty is imposed in respect of multiple breaches, the amount of a penalty must not be less than the total minimum amount that would have been imposed or exceed the total maximum amount that could have been imposed if each breach had been penalised separately (taking into account the effect of subsection (3)).
52. Subsection (8) provides that an enforcement authority may not impose a penalty on a person if another enforcement authority has already imposed a penalty on the person for the same breach.
53. Subsection (9) enables the relevant authority to make regulations amending the minimum and maximum penalty amounts set out in subsection (2) by way of regulations. This power may only be exercised where the relevant authority considers it expedient to do so to reflect changes in the value of money (subsection 10).

Section 10: Recovery of prohibited rent by enforcement authority

54. If the enforcement authority is satisfied on the balance of probabilities that a tenant under a regulated lease has made a payment of a prohibited rent and all or part of that rent has not been refunded, the enforcement authority can order the repayment of the prohibited rent by any of the following:
    • the landlord at the time the prohibited rent was paid;
    • the landlord at the time the enforcement authority makes the order; or
    • a person acting on behalf of one of the above where the payment was paid to that person.

55. However, the above does not apply if the tenant (or person acting on behalf of the tenant) has made an application to the appropriate tribunal to recover the prohibited rent under section 13 or an enforcement authority has previously made an order under section 10 in relation to the payment (subsection (3)).
56. Where a tenant has made multiple payments of a prohibited rent under the same lease and these have not been refunded, the enforcement authority may make a single order for repayment for all the prohibited rent that has not been refunded (subsection (4)).

Section 11: Interest on amounts ordered to be paid under section 10

57. Section 11(1) provides that where an enforcement authority is imposing a penalty under section 10, they can also require interest on the outstanding amount to be paid.
58. Subsections (2) and (3) set out how this interest is to be calculated and subsection (4) specifies that the rate of interest is the judgment rate.
59. Subsection (5) caps the total amount of interest that can be charged. The total amount of interest paid must not exceed the amount of the rent order to be repaid under section 10 (subsection (5)).

Section 12: Enforcement authorities: supplementary

60. Subsection (1) requires enforcement authorities to have regard to any guidance issued by the Secretary of State about its functions under this Act in relation to a lease of premises in England and have regard to any guidance issued by Welsh Ministers about its functions under this Act in relation to a lease of premises in Wales. A link to this guidance is provided in the ‘"Related Documents’" section of these notes.
61. Subsection (3) makes provision for the investigatory powers available to domestic enforcers under Schedule 5 of the Consumer Rights Act 2015 to be available to enforcement authorities enforcing section 3 of this Act.
62. Subsection (4) introduces the Schedule to the Act which sets out the procedure for imposing a financial penalty under section 9 or making an order under section 10 including the time limits, rights of appeal, recovering the financial penalty or an amount ordered to be paid and retention of sums received.

Section 13: Recovery of prohibited rent by tenant

63. This section allows tenants (or person acting on behalf of a tenant) under a regulated lease who have paid prohibited rent that has not been refunded to apply to the appropriate tribunal for a recovery order.
64. A recovery order is an order requiring the repayment of any of the prohibited rent that has not already been refunded by any of the following:
    • the landlord of the lease at the time the prohibited rent was paid,
    • the landlord of the lease at the time the application is made,
    • a person acting on behalf of one of the above where the payment was paid to that person.

65. The prohibited rent must be repaid within 28 days after the order has been made (subsection (3)).
66. Subsection (5) provides that where multiple payments of prohibited rent have been made and not refunded, the enforcement authority can make a single recovery order in respect of all of those payments.
67. Subsection (6) means that the appropriate tribunal must not make a recovery order if an enforcement authority has already ordered the recovery of the prohibited rent under section 10.
68. Nothing in this section prevents a person recovering monies owed under contractual remedies in the general law (subsection (7)).

Section 14: Interest on amount ordered to be paid under section 13

69. Section 14 allows the appropriate tribunal to include in the recovery order (see section 14) a requirement for interest to be paid. Interest is payable from the day on which the payment of prohibited rent was made until the day on which the amount ordered is paid.
70. Where the penalty relates to more than one payment of prohibited rent, interest is payable from the day on which each payment of prohibited rent was made until that part of the amount is paid.
71. The rate of interest is specified in section 17 of the Judgements Act 1838.
72. The total amount of interest payable must not be more than the amount ordered to be paid.

Section 15: Application to appropriate tribunal as to effect of section 7

73. This section allows either a tenant or landlord of a regulated lease to apply to the appropriate tribunal for a declaration as to the effect of section 7 on a term in the lease (or a contract relating to the lease).
74. Following such an application, if the appropriate tribunal is satisfied that the lease includes a prohibited rent, it must make a declaration as to the effect of section 7 on the terms of the lease (or related contract).
75. Where there are two or more regulated leases with the same landlord, a single application may be made in respect of those leases, by either the landlord or by a tenant of one of the leases with the consent of the tenant(s) of the other leases (subsection (3)).
76. Where the tenant is the registered proprietor of the leasehold the appropriate tribunal can also direct the landlord to apply to the Chief Land Registrar, and pay the appropriate fee, to enter the declaration in the registered title. The tenant may apply to the Chief Land Registrar, and pay the appropriate fee, for the declaration to be entered in the registered title (subsection (5)).

Section 16: Assistance

77. This section allows an enforcement authority to help a tenant or former tenant, a person acting on behalf of a tenant or former tenant or the guarantor of a tenant or former tenant to apply for a recovery order (section 13) and to recover an amount that the appropriate tribunal orders to be paid under a recovery order.
78. This section also allows an enforcement authority to help a tenant or a person acting on behalf of a tenant to apply for an order declaring the effect of section 7 on a regulated lease (section 15).
79. The help that an enforcement authority can provide under this section can include conducting proceedings or giving advice.

Section 17: Interpretation of enforcement provisions

80. Section 17 defines "tenant", for the purposes of sections 10, 13 and 16, to include a person acting on behalf of a tenant and (except in relation to section 16(1)(b) which relates to applications for a declaration of the effect of section 7 on the terms of a regulated lease) a former tenant or a guarantor.
81. This section also specifies that the "appropriate tribunal" is the First-tier Tribunal where the lease of the premises is in England and a leasehold valuation tribunal where the lease of the premises is in Wales.

Section 18: Administration charges for peppercorn rents

82. Section 18 requires that no administration charge is payable in relation to the collection of any ground rent that is restricted to a peppercorn by this Act. It does this by amending relevant provisions in the Commonhold and Leasehold Reform Act 2002. The tenant can apply to the First-tier Tribunal in England or in Wales to a leasehold valuation tribunal for a determination whether an administration charge is payable or for an order varying the lease on the ground that such an administration charge is not payable.
83. The tenant can also apply (under section 24 of the Landlord and Tenant Act 1987) to the First-tier Tribunal in England or in Wales to a leasehold valuation tribunal to request that it makes an order appointing a manager where prohibited administration charges have been made. This will enable the appropriate tribunal to take action where, for example, a landlord includes administration charges in leases on numerous occasions.

Section 19: Amendments to Housing Act 1985

84. Section 19 made a consequential amendment to Part 5 of the Housing Act 1985 (right to buy).

Section 20: Consequential amendments

85. Section 20 enabled the Secretary of State to make provision that is consequential on this Act by regulations. Such regulations may amend an Act of Parliament including an Act passed in the same session as this Act.

Section 21: Regulations

86. Section 21(1) states that any power to make regulations under this Act includes power to make consequential, supplementary, incidental, transitional or saving provision and different provision for different purposes.
87. Regulations under this Act are to be made by statutory instrument and are subject to annulment by a resolution of either House of Parliament if the regulations are made by the Secretary of State, or Senedd Cymru if the regulations are made by the Welsh Ministers with the exception of:
    1. regulations under section 20 which amend an Act of Parliament which must made in draft and laid before and approved by a resolution of each House of Parliament;
    2. commencement regulations under section 25.

Section 22: Interpretation

88. Section 22 defines various terms used throughout the Act. Subsection (1) defines a long lease as one granted for a period exceeding 21 years (whether or not it may be terminated sooner). It also includes a lease granted for a fixed term but with an obligation or covenant that means the lease will be continually renewed, other than a sub-lease of a lease which is not a long lease, or a lease that is terminated after a death, marriage or civil partnership.
89. Subsection (2) defines dwelling as a building or part of building that is occupied or intended to be occupied, and any land usually enjoyed around it such as a garden or outhouses. Subsection (2) also makes clear that in the Act the term lease means either an equitable or legal lease (and that references to grant of a lease are to be construed accordingly) and includes a sub-lease, but does not include a mortgage term. It defines rent as anything in the nature of rent, regardless of what it is called.
90. Subsection (2) also defines a premium as any ‘"pecuniary consideration’" for the grant of the lease, other than rent.
91. In addition, subsection (2) sets out the meaning of the "relevant authority" to mean the Secretary of State in relation to a lease of premises in England and to mean the Welsh Ministers in relation to a lease of a premises in Wales.
92. Subsection 3 clarifies that a sum expressed to be payable in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters is not rent for the purposes of this Act merely because it is reserved as rent in the lease.

Section 23: Crown application

93. Section 23(1) provides that the Act applies to Crown land as defined in subsection (2).

Section 24: Extent

94. This section is explained under paragraphs 20 and 21 of these Explanatory Notes above.

Section 25: Commencement

95. This section is explained under Commencement below.

Section 26: Short title

96. This section is self-explanatory.