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POSTED 27 September 2018 Lettings

What is Ground Rent?

Ground rent is a payment made by the buyer of a lease property to a freeholder every year. This is usually the case for most leasehold properties and costs between £100-300 a year (depending on the freeholder). This article details the obligations and liabilities associated with ground rent.

Check the contract

Before entering any leasehold agreement the purchase contract is to be reviewed carefully by a qualified solicitor who can advise accordingly. The leaseholder can also read through the contract carefully and raise any issues or questions regarding the leasehold agreement.

In particular, increases to ground rent should be identified as this is often added to allow rent to keep up with inflation. However, this fee can end of doubling after a set period of time. On properties with long leases such as 200 years or more, this can lead to unmanageable ground rent prices.

Leaseholder rights

Freeholders, estate agents and housing companies all know their rights, so it’s a good idea for a leaseholder to understand theirs also. Ground rent is payable in arrears and is collected after six months or at the end of each year. The leasehold agreement usually contains these details.

It is not compulsory to pay the ground rent until it has been formally requested by the freeholder. The request should be posted to the leaseholder's current address and must contain the following information to be valid:
  • The name of the leaseholder
  • The period of cover
  • How much the leaseholder has to paid
Be aware that the freeholder is not allowed to raise the ground rent unless stipulated in the initial lease agreement.

Responsibilities of the leaseholder

Even if the freeholder doesn’t request payment, it doesn’t necessarily mean that the ground rent should not be paid. The freeholder can make a late request for the money and is legally able to recover unpaid ground rent going back six years. Additionally, the leaseholder can be asked to pay for the full amount in one go.

What happens if ground rent is not paid?

Ultimately, the matter of unpaid ground rent is usually dealt with in court. In cases where no payment is made, the freeholder can commence forfeiting procedures against a leaseholder. This means that they can repossess the property in theory.

This action, however, can only be carried out: 

  • If the leaseholder has an outstanding debt amount of £350 or more
  • If the leaseholder has been in arrears for three years or more years

If no payment is made even after the court's enforcement, then enforcement agents can forcefully evict the leaseholder from the property.

Reducing ground rent

Leaseholders looking to reduce ground rent can exercise their legal right to formally extend the lease on the property by 90 years. This will reduce the ground rent to nothing and is known as peppercorn rent. 

Although extending a lease is often not cheap, if the current ground rent is much higher than required then it could be very cost-effective in the long run.