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The promised improvement to “fairness and transparency in the leasehold market” is underway, with ground rent the first target.
Ground rent
Significant reform under the Leasehold Reform (Ground Rent) Act 2022 has now been in effect since the end of June 2022. The key change is the abolition of ground rent in long leases of newly built residential homes and also for informal lease extensions.
And if the current owner starts negotiating with the freeholder to extend an existing lease, the freeholder cannot increase the ground rent for the period remaining on the lease. However, anecdotally, not all estate agents have cottoned on to the changes, to the potential detriment of prospective buyers.
Also, retirement properties – typically held under a 999-year lease – are also subject to the changes, but with a slight difference: though landlords will no longer be able to charge ground rent when granting new leases – they have until (at least) 1 April 2023 to comply.
What about existing leaseholders? Unfortunately, given that the provision abolishing ground rent is not retrospective, existing leaseholders have no choice but to continue paying ground rent (unless they are in a position to start negotiating an informal leasehold extension). However, the status quo for them may not last for too much longer with further reforms in sight. The government recently announced that:
- Leaseholders of flats (and houses) will be given the same right to extend their lease agreements “as often as they wish, at zero ground rent, for a term of 990 years”.
- Existing long leaseholders will be able to buy out the ground rent without having to extend the lease term.
Conveyancers will be watching to see when these proposals see the light of day.
Fire Safety
Conveyancers also need to get to grips with the latest reforms to fire safety rules and regulations affecting long residential leases, checking the provisions in standard form/templates for new leases. The Fire Safety Act 2021 (sections 1 and 3) came into force on 16 May 2022 and makes clear that multi-occupied residential blocks are within scope of the Fire Safety Order.
The responsibilities of the Responsible Person have therefore been extended. The Responsible Person for these purposes is anyone having control of the building (usually the freeholder, management company or buildings manager).
Where the building contains at least two domestic premises, the structure, external walls and attachments, such as balconies, and flat entrance doors must be taken into account in the fire risk assessment. Previously, the responsibilities were limited to the internal common parts only.
Under s3, the Responsible Person can rely on their compliance with the article 50 commencement guidance (which can include using the Fire Risk Assessment Prioritisation Tool) to show they have met their obligations under the Order. Otherwise, they will have to show alternative evidence of compliance. New leases must be checked to ensure they take into account these new responsibilities.
What’s next?
On 23 January 2023, the Fire Safety (England) Regulations 2022 come into force, impacting multi-occupied residential buildings (England only). The rules vary depending on the height of the building. For example, where the building is at least 11m high, the Responsible Person will be required to conduct an annual inspection of fire doors at the front of flats leading directly to communal areas; and quarterly checks of other fire doors to the communal parts.
Unsurprisingly, the legal obligations increase for the higher risk buildings (those of at least 18m or seven storeys), for instance, monthly checks on firefighting and evacuation lifts – with any identified defects that can’t be fixed with 24 hours to be reported to the local fire service.
Clients – and third parties who are the Responsible Person - need to know what their obligations are under the new regulations and prepare ahead of the implementation date. The cost of compliance also needs to be considered – who is responsible under the terms of the existing lease? And if a new lease is being granted, liability for an increase in costs will need to be determined in light of the changes.
Finally, the provisions of the Building Safety Act 2022 (which implements the recommendation of the Grenfell tower review) are coming into force in a piecemeal fashion. They include important obligations in the case of higher risk buildings, including maintaining a ‘golden thread’ of information and record keeping from the start, including safety documents.
The Act undoubtedly imposes a greater burden on developers (in the design and construction stages), freeholders and landlords – but the Grenfell disaster shows it’s necessary.
For more information about the latest legislation, you can access our webinars here.
