The Leasehold Reform (Ground Rent) Act 2022 (Act) caps ground rents in new long residential leases in England and Wales at a peppercorn (i.e. no monetary value).

Here are 10 points you need to know about the Act:

1. Commencement: although the Act received Royal Assent on 8 February 2022, it is not yet fully in force. It is expected to come fully into force within six months of Royal Assent. Different commencement days may be set for different types of leases. The earliest commencement date permitted for leases of retirement homes is 1 April 2023.

2. Scope: the Act only applies to regulated leases. In general (subject to some exceptions), this means leases granted:

• for a term exceeding 21 years;
• in respect of a single dwelling;
• for a premium; and
• on or after the relevant commencement date for leases of that type and otherwise than pursuant to an existing contract made before that commencement date. Note that, in this context, an option agreement or right of pre-emption does not constitute a contract for the purposes of the Act.

The Act is wide enough to catch the surrender and re-grant of a lease as a result of a variation (and, in that scenario, the requirement for a premium would not apply). 

3. No retrospective effect: the Act does not have retrospective effect – it does not apply to leases granted before the relevant commencement date.

4. Exceptions: business leases, some statutory lease extensions, community housing leases and home finance lease plans, provided they meet the criteria for excepted leases, are excluded from the provisions of the Act. 

5. Prohibited and permitted rents: landlords of regulated leases must not require the tenant to pay a prohibited rent. The default position is that a prohibited rent is anything other than a peppercorn, save in the case of shared ownership leases and replacement of some pre-commencement leases where special rules apply. While rent is widely defined, the Act makes it clear that sums payable for insurance and services (even where reserved as rent) can still be demanded.

6. Construction of leases: a clause seeking to reserve a prohibited rent (i.e. a rent above the levels permitted by the Act) will be construed as if it reserved the permitted rent only.

7. Breach: a landlord will be in breach of the Act if it (or someone acting on its behalf) requests payment of a prohibited rent and/or receives a prohibited rent and/or fails to refund it to the tenant within 28 days beginning on the day after receipt. "Landlord"' includes a person who has ceased to be landlord. "Tenant" includes a person acting on behalf of the tenant, a person who has ceased to be tenant and/or a person who has guaranteed the payment of rent by a tenant.

8. Enforcers: breach of the prohibition on prohibited rent can lead to enforcement action by the tenant, the local weights and measures authority (i.e. Trading Standards) and/or the district council.

9. Enforcement action: a breach could result in fines of up to £30,000 (though there are rules dealing with multiple breaches), and/or a repayment order or a recovery order.

10. Administration charges: the Act also requires that no administration charge is payable in relation to the collection of a ground rent that is restricted to a peppercorn by the Act.