What is Ground Rent?
Leaseholders in England and Wales have to pay rent to the freeholder or landlord of the property. This is known as ground rent. In this guide, we’ll go over what it includes, why and when you pay, and some of the newer legislation surrounding ground rent.
Why do you pay ground rent?
If you pay ground rent, you own your home as a leaseholder, but you don’t own the land. The reason you pay ground rent is to rent the land on which your property sits. As of 2020, around 4.5 million households in England and Wales own their homes on a leasehold basis.
You pay ground rent annually to the freeholder of the property, which is often an investment firm, which grants you the right as the homeowner to live there on the terms of the lease.
What’s included in ground rent?
Ground rent costs typically include any maintenance and repair of the structure of the building and any common parts (like guttering), the cost of the building’s insurance and maintenance of any communal grounds or private accessways.
The lease will outline exactly what is and isn’t covered, so check it carefully.
How much ground rent will you need to pay?
How much ground rent you pay varies depending on the type and location of the property, but in most cases, ground rent is affordable. For most ex-local authority flats, it is around £20 to £50 per year, but private flats range between around £150 to £600 per year.
An interesting piece of history is that freeholders would ask for a peppercorn, as a physical symbol to enforce the terms of the lease and make it legally binding. The term ‘peppercorn rent’ can now apply to a very low or nominal amount of ground rent.
Leaseholders typically pay ground rent every three months, every six months, or once a year.
Fixed and escalating ground rent
There are two basic types of ground rent:
- Fixed Ground Rent, which remains unchanged during the term of the lease
- Escalating Ground Rent, which will increase during the term of the lease
Your lease agreement must provide the following details:
- The term of the lease
- Type of ground rent
- The amount you will pay
- If it’s escalating when it will increase and by how much
Ground rent review
There are some clauses that can be included in a lease that allow for a review of ground rent periodically, for example, every 5, 10 or 25 years. Typically, the review clause allows the freeholder to increase the ground rent at each review.
Can ground rent be reduced?
Ground rent doesn’t usually get reduced, but you might be able to become a freeholder. Whether or not you will be able to do this will depend on your particular situation. If you live in a flat, at least half of the other leaseholders will need to buy the freehold of the building to make this possible.
If you are interested in buying a share of the freehold, it is best to seek legal advice as it is a complex process.
We’re on a mission to get you moved
At haart, we understand the buying and selling process completely, which means we can support you while you do both, even if it’s a leasehold property.
We use expert local knowledge and unique technology to make sure you get the best offer on the property you sell, so you can move to your new home as quickly as possible (and with as little stress).
Contact your local branch and let’s get you moving.