People who have a leasehold for a property in England and Wales are required to pay a fee to the freeholder or landlord of their property, known as ground rent. In this guide, we’re bringing you everything there is to know about ground rent and how it might relate to your home.
Ground rent in a nutshell
If formally asked by their freeholder, leaseholders must pay ground rent on their property. Not doing so can result in the landlord taking the leaseholder to Court. However, the law clearly states that an individual is not required to pay ground rent if their landlord or freeholder has not formally requested them to do so.
In order to be considered valid, this formal request would have to include the name of the leaseholder, the period the leaseholder will be expected to pay ground rent, the amount of ground rent to be paid, the name and address of the freeholder and the date on which ground rent must be paid.
Types of ground rent
Ground rent can be fixed or escalating.
• Ground rent that is fixed will remain the same for the entirety of your lease.
• Escalating ground rent will increase over the lease’s term. The amount at which the ground rent increases would be established in the lease agreement.
If the freeholder is looking to increase the ground rent that was otherwise fixed, they must inform the tenant of this and specify the new amount requested, and the tenant has the option to agree or propose a new offer.
Disagreement on ground rent increases would be passed to an arbitrator from the Royal Institution of Chartered Surveyors.
How much is ground rent?
Currently, there are no prescribed methods for ground rent as it varies depending on your lease, but certain properties have typical rates of ground rent. For instance, a newer flat could have an annual ground rent of £200 to £500 whereas the ground rent of a former council flat could be as little as £10 per year.
Ground rent is only one of the types of fees leaseholders are required to pay their freeholder, such as maintenance fees or buildings insurance, and are therefore usually on the lower end. If some properties see low values of £5 or £10, a freeholder may not formally request payment and simply absorb those costs, known as peppercorns.
As an average, leasehold buyers can expect to pay about £370 in ground rent per year, to be paid either bi-annually or at the end of the year unless otherwise outlined in your lease.
What if the leaseholder can’t pay ground rent?
If a leaseholder can’t afford to pay ground rent, it would be considered a breach of contractual agreement.
The freeholder is within their rights to take legal action against them. The freeholder can opt to recover the ground rent owed by going through the courts. If the dispute is not settled, the freeholder can then try to repossess the property, known as beginning forfeiture proceedings. However, the law says that forfeiture proceedings are only appropriate if the leaseholder owes over £350 and has owed it for over three years.
There is the possibility of reducing ground rent, which would require the tenant requesting the landlord for a lease extension or try to extend it through collective enfranchisement.