We take a look at ground rent, why it needs to be paid and how you can get rid of it. We’ll aim to answer all the most frequently asked questions on ground rent and some related topics around owning a leasehold property.
What is ground rent?Ground rent is a regular payment to the freeholder that you’ll need to make if you own a leasehold property. The freeholder charges it, though it may be collected by a management services company.
Is ground rent the same as rent?Ground rent is not the same as rent. Regular rent – what tenants, landlords and estate agencies usually refer to as the regular ‘rent’ – is the monthly charge for living in the owner’s property. Freeholders make ground rent as an additional charge.
Why do you pay ground rent?As a leaseholder, you need to pay ground rent because the freeholder owns the land and you pay them to ‘lease’ the land that your property is on. While there is reform underway on ground rent in the UK, currently leaseholders lease the land and the actual property separately.
Who pays ground rent?The leaseholder normally pays ground rent to the freeholder, or sometimes to a superior leaseholder. The terms of your lease should say when, and how much, the payments should be. You can also see how often it can be increased. And by how much.
What’s included in ground rent?Ground rent is literally the charge for renting out the land from the freeholder, it doesn’t include any extra services. If you pay ground rent as a leaseholder, you will also likely pay annual service charges. This is a flat fee that a management company charges on behalf of the freeholder.
Annual service charges may include things like the cleaning of communal areas, upkeep on gardens, and the use of any on-site facilities, such as a gym or swimming pool.
What is a typical ground rent?A typical ground rent is usually up to £400 per year, but can be more, depending on the terms of your lease. You need to read the terms of your lease very carefully, as some unscrupulous freeholders may increase ground rents regularly, and by large amounts.
How is ground rent calculated?In the UK, there is no set way to calculate ground rent. Freeholders can technically charge whatever they want for ground rent. In reality, any more than £500 per year, or £1,000 for London properties, is excessive.
The potential for freeholders to exploit ground rent by overcharging is the main reason that set off the ‘Ground Rent Scandal’. This, in turn, has led to the proposed reforms to ground rent through the current parliamentary bill.
Is ground rent normal?Ground rent is a wholly normal part of the UK property scene. The vast majority of freeholders do charge leaseholders ground rent if applicable. Ground rent is not a scam, it is an entirely legal charge that can be levied by freeholders.
How do I get rid of ground rent?If you’re a homeowner in Wales or England you cannot buy out your ground rent. However, you may be able to gain a share of the freehold. To do this, you and at least half of the other leaseholders would need to buy the freehold of the building.
We look at the benefits and drawbacks of doing this in our article What does share of freehold mean?
What happens if I don’t pay ground rent?If you don’t pay your ground rent the freeholder can take legal action against you. They can get a court order that will allow them to recover the money you owe them. They can also regain possession of the property from you by bringing what’s called a forfeiture action. However, they can only do this once you have owed them ground rent for at least three years and owe them at least £350.
Will ground rent be abolished?Following the ground rent scandal, the UK government created new laws around leasehold practices, specifically related to ground rents. The Leasehold Reform (Ground Rent) Act 2022 establishes the banning of ground rents from 30 June 2022, for anyone buying a new home on a long lease (21 years or longer). This is in addition to other measures designed to protect leaseholders.
The Government claims that this will benefit around 4.5 million UK leaseholders. It will also serve as the start of a process of major reform on leasehold property management in general.
Can a landlord increase my ground rent?Landlords can only increase your ground rent if the terms of that increase are set out in your lease. For example, some leases state that the ground rent will increase according to the rental value of the property. Or, it may increase by a fixed amount at certain times.
How often do you have to pay ground rent?You will normally pay ground rent annually. However, you can also pay it bi-annually (every six months) or quarterly (every three months). The terms of the lease should state the payment schedule clearly.
Who is ground rent paid to?The freeholder charges ground rent to leaseholders. Alternatively, the ultimate owner of the land you live on may charge you ground rent. While you may sometimes pay ground rent payments to a management company, the money ultimately ends up back with the freeholder.
Do freeholders pay ground rent?The only way you may pay ground rent as a freeholder is if you own the property on a ‘share of freehold’ basis. This means you own the property as a leasehold, with a certain portion of the freehold included in the purchase. This type of buying arrangement usually applies to apartments. If you own the property on a ‘share of freehold’ basis, the terms are the same as a standard leasehold. So, you may still have to pay ground rent.
Some cases still exist where freeholders are charged a nominal ground rent, around, £5 or lower. This is a holdover from ancient laws that are still applicable in certain areas of the country. 1930s properties in the Bristol and Greater Manchester areas are some examples.
One commonly cited historic law on ground rent is that of the peppercorn ground rent. See below for details.
What is a peppercorn ground rent?Historically, a ‘peppercorn’ ground rent often meant a rent that was of nominal or low value. The Gov.UK guidance on the Leasehold Reform (Ground Rent) Act 2022 is the first legal act to properly define this term as ‘an annual rent of one peppercorn’. The Act itself restricts ground rents on new leases (unless an excepted or non-regulated lease) to a peppercorn rent. This means that ground rent on new leases is effectively restricted to zero.
Freeholders are not expected to actually start charging a literal peppercorn.
Is ground rent the same as service charge?Although ground rent and service charge are both associated with leasehold properties, they aren’t the same thing. Ground rent is a payment to your landlord, set out in the terms of the leasehold. The landlord doesn’t necessarily need to provide a service for your ground rent payment. Service charges, on the other hand, are payments to cover the cost of maintenance of your building or its grounds. Depending on the terms of your lease, a freeholder could ask you to pay both ground rent and a service charge.
What is the ground rent scandal?The leasehold and ground rent scandal refers to the way that some freeholders in recent years have included unfair ground rent charges in their lease terms. This allowed them to increase ground rent so much that leaseholders could no longer afford it and struggled to sell their properties.
If you have been affected by unfair leasehold practices, follow the Government’s investigation into the issue here. The UK’s top 4 housebuilders – Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey, plus other freeholders, were investigated for unfair practices around the selling of leasehold homes. Between late 2020 and late 2021, the freeholders and housebuilders agreed to make changes to their leasehold processes, including clauses that were allowing ground rent charges to escalate.
What is happening with Ground Rent in 2023?The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022 and, despite lots of discussion in Parliament, it doesn’t look like it will change much in the near future. The act only bans ground rent for new leasehold agreements, not existing ones.
So, despite existing leaseholders campaigning hard for further amendments, ground rent can still be imposed on agreements already in place. Currently, (March 2023) this is not due to change.
Find answers to more of your property-related questions in our HomeViews Guides articles.
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