Bill Proposes Abolition of Ground Rent

Introduction
Previous Legislation
Purpose
Procedure
Compensation
Freehold Certificate
Registration of Interest
Comment

Introduction

A ground rent is the rent paid under a long residential lease, which in practice can be up to 999 years in length. The ground rent is usually a nominal sum, unlike a short residential tenancy where the primary consideration is normally the rent payable.

Long residential leases are the product of the system of development of urban residential property in Ireland in the last 100 years. This was to grant building leases from freehold property and then create a series of proprietary sub-leases for individual plots, rather than conveying the fee simple in each instance. Most of the profit for the lessor and the builder came from the initial sum paid by the lessee for his long lease and sums paid by the sub-lessees for the newly built houses on individual plots. The ground rent was usually a relatively small annual sum, which was continuously reduced by inflation.

The intention of the new Landlord and Tenant (Ground Rents Abolition) Bill 2000 is essentially to abolish long residential leases and therefore remove the uncertainty they create in relation to title. The difficulty is caused by the fact that irrespective of how old the lease is the purchaser will be bound by the conditions and covenants therein. The fact that the landlord maintains a proprietary right through the ground rent that is owed to him further complicates the abolition of ground rents. Provisions must be must included to compensate the landlord adequately, despite the fact that he may never have collected the ground rent or be easily identifiable.

Previous Legislation

Previous legislation has attempted to tackle the issue of ground rents but has never done so in such a decisive manner. The Landlord and Tenant (Ground Rents) Act 1967 gave the right to the lessee to 'buy out' his interest, thus winning the freehold from the superior landlord and any intervening landlord existing on the title. The Landlord and Tenant (Ground Rents) (No 1) Act 1978 prevented the creation of new ground rents on domestic dwellings, with the exception of blocks of flats. The Landlord and Tenant (Ground Rents) (No 2) Act 1978 made it more economical to buy out freeholds than under the 1967 act and abolished the right of a landlord to seek the eviction of a householder for failure to pay the ground rent. The buying-out provisions will undoubtedly have reduced the estimated 11,000 ground rents in existence in 1978, but the mere publication of this bill suggests that ground rents remain a contentious issue.

Purpose

The purpose of the bill is to bring about the termination of all ground rents at a definite time in the future. The bill applies to all ground rents in respect of private dwellings, local authority dwellings, and all other premises currently under a ground rent lease.

Procedure

The central purpose of the bill is achieved by Section 7, which provides that, on a day to be appointed by the minister for justice, equality and law reform, the interest of a person holding property under a ground rent lease will be enlarged to the freehold (fee simple) and all intermediate interests will be extinguished. All the various strata of sub-leases will be wiped out, leaving the person in occupation under the ground rent lease with the freehold. The bill provides that the person in occupation will then be responsible for compensating the landlord.

Compensation

Section 18 establishes the right to seek compensation. It also sets out the criteria that will be used for calculating compensation on arbitration, thus providing a guideline to parties seeking to do so by agreement. It requires the purchaser to pay a price that a willing purchaser would pay and a willing vendor would accept subject to the guidelines contained in the section. This method is similar to that used in the 1978 acts, as amended by the Landlord and Tenant (Amendment) Act 1984. However, there is no distinction in the method of calculation where the lease has expired or has less than 20 years to run, as with previous legislation.

Section 19(2) provides a more tangible means of calculating compensation by setting the compensation as a fixed multiple (to be fixed by ministerial order) of the ground rent. This amount will be deemed to apply unless and until compensation is agreed between the relevant parties or is determined by the arbitrator.

Section 19 creates a charge of the compensation that is payable over the new freehold. This charge can be vacated and the receipt in writing of the parties entitled to compensation will be sufficient proof of the vacating of the charge.

Section 20 provides that a receipt for payment of the compensation under Section 19(2) by the county registrar or by the registrar of titles shall be sufficient proof of the vacating of the charge. This does not appear to be final, however, as Section 21 provides that where money has been lodged in accordance with Section 19(2) and there is then arbitration, the amount deposited will only act as a credit against the amount awarded on arbitration.

Freehold Certificate

Section 24 states that where all the parties agree (ie, the party with interest in freehold and parties with a right to compensation), the agreement shall be void unless all necessary persons complete a "freehold certificate" in the prescribed form. Completion of a freehold certificate is a condition precedent to the entitlement to compensation of the lessor.

Section 25 sets out the form and content of the freehold certificate. It is to be completed by the parties to the agreement or the arbitrator and must contain the basic information relevant to the agreement. The freeholder can then be registered in the Land Registry upon production of this freehold certificate.

Section 27 sets out the procedures that should be followed where the parties required to perform any of the acts under the legislation cannot be found (Section 27(2)), or are unknown or unascertained (Section 27(3)), including those for:

• joining in an agreement for payment of compensation or the execution of a freehold certificate;
  
  
• providing a receipt as required by Section 1;
  
  
• serving a notice under Section 23; and
  
  
• being party to an arbitration

In any of these situations the county registrar or the register of titles may appoint an officer of the court to represent the unknown or unascertained party in all proceedings.

Registration of Interest

Section 42 provides that a freehold certificate shall be deemed to be a conveyance or sale for the purposes of the Registration of Title Act 1964 and shall be deemed to be an instrument in the prescribed form for the purposes of Section 51 of that act.

Section 43 allows the registrar of titles to provide for the registration of an interest enlarged to a fee simple.

The Land Registry fee is set at £30.

Comment

As this bill has been put forward by a member of the opposition it is less likely to become law. However, the government may be swayed to adopt it, as it is identical to a bill previously put on the Order Paper of the Dail by Fianna Fail when in opposition.

For further information on this topic please contact Paul Eustace at Dillon Eustace by telephone (+353 1 6670022) or by fax (+353 1 6670042) or by e-mail ([email protected]).