Leasehold and Freehold Reform Act 2024

Reduction of rent under intermediate leases

8 (1) This paragraph applies if, at the time when a rent variation notice is given, there are one or more qualifying intermediate leases.

(2) For the purposes of this paragraph a lease is a “qualifying intermediate lease” if—

(a) the lease demises the whole or a part of the property to which the rent variation notice relates,

(b) the lease is immediately superior to—

(i) the lease to which the rent variation notice relates, or

(ii) one or more other leases that are themselves qualifying intermediate leases,

(c) relevant rent is payable under the lease, and

(d) that relevant rent is more than a peppercorn rent.

(3) The landlord or the tenant under a qualifying intermediate lease may, by giving notice to the relevant landlord or landlords before the variation of the lease to which the rent variation notice relates, require the rent payable under the qualifying intermediate lease to be reduced in accordance with sub-paragraphs (6) to (8).

(4) If—

(a) under sub-paragraph (3) the rent under a lease is required to be reduced in accordance with this paragraph, and

(b) that lease is superior to one or more other qualifying intermediate leases,

the rent payable under the other qualifying intermediate lease or leases is also to be reduced in accordance with sub-paragraphs (6) to (8).

(5) The landlord and tenant under a qualifying intermediate lease must vary the lease—

(a) to give effect to a reduction of the rent in accordance with sub-paragraphs (6) to (8), and

(b) to remove any terms of the lease which provide for an increase in the rent, or part of the rent, so reduced.

(6) If the whole of the rent under a qualifying intermediate lease is relevant rent, the rent under that lease is to be reduced to a peppercorn rent.

(7) If only part of the rent under a qualifying intermediate lease is relevant rent—

(a) that part of the rent is to be reduced to zero, and

(b) the total rent is to be reduced accordingly.

(8) But the amount of the reduction in a person’s rental liabilities as tenant is limited to the amount of the reduction in that person’s rental income as landlord; and here—

(a) “reduction in a person’s rental liabilities as tenant” means the reduction in accordance with sub-paragraph (6) or (7) of the rent payable by the person as tenant under the qualifying intermediate lease;

(b) “reduction in that person’s rental income as landlord” means the amount (or total amount) of the relevant reduction (or reductions) in rent payable to that person as landlord of one or more other reduced rent leases.

(9) Each eligible landlord is entitled to be paid a share of the required premium (see paragraph 7).

(10) An eligible landlord’s share of the required premium is to be determined using this formula—

where the loss suffered by an eligible landlord is the loss which that landlord suffers as a result of the relevant reduction in the rent of the lease by virtue of which they are an eligible landlord (taking into account any relevant reduction in the rent of a lease of which they are the tenant).

(11) In this paragraph—

• “eligible landlord” means the landlord of a lease whose rent is subject to a relevant reduction;

• “reduced rent lease” means—

  (a)

  the lease to which the rent variation notice relates, or

  (b)

  a qualifying intermediate lease;

• “relevant landlord” means—

  (a)

  the landlord under the qualifying lease, and

  (b)

  any superior landlord who must be given a copy of the rent variation notice in accordance with paragraph 16 or 17;

• “relevant reduction” means—

  (a)

  in relation to the lease to which the rent variation notice relates, a reduction resulting from that tenancy being varied in accordance with the other provisions of this Schedule;

  (b)

  in relation to a qualifying intermediate lease, a reduction resulting from this paragraph;

• “relevant rent” means rent that has been, or would properly be, apportioned to the whole or a part of the property to which the rent variation notice relates.