Law firm supporting developers over new ground rent legislation

31st May 2022, 12:53 pm

Commercial property specialists at Manchester law firm Clarke Willmott LLP say they are seeing an increase in the number of developers contacting them over government leasehold reform of later living schemes.

The Leasehold Reform (Ground Rent) Act 2022 is part of a review of leasehold practices to prevent landlords from charging ground rents exceeding a nominal amount in new leases of residential properties.

Connie O’Donnell, an associate in Clarke Willmott’s commercial property team, said: “The Act is intended to protect tenants from high ground rents from which they receive no benefit, however the reforms may cause problems for developers going forwards.

“Following implementation of the Act, developers will need to consider how the ongoing costs of running a later living complex can be recovered without affecting the viability of developments and may face challenges in respect of sales if the income from charging ground rents is recovered from other heads of income which then are seen to rise.”

While traditional letting schemes focus on achieving a high density of lettable units, the area occupied by communal areas within retirement developments can amount to up to 30 per cent of the total floor space.

“Ground rents are often a central part of the funding structure of retirement complexes and allow developers to provide and maintain the facilities such as a fitness centre, laundry services, or swimming pool,” added Connie.

The legislation restricts ground rents on new leaseholders to a peppercorn sum; if found in breach, landlords could be fined between £500 and £30,000, and tenants will be able to reclaim unlawfully charged ground rents, plus interest.

However, the Act only applies to leases granted after the implementation date, so landlords of existing schemes will need to keep in mind the measures will mean some occupants are charged ground rent, whereas some are not.

Connie O’Donnell specialises in all aspects of commercial property work including commercial landlord and tenant matters, commercial and residential development work, property acquisitions and disposals and secured lending.

Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton, and Taunton.

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