What is Ground Rent?

As a leaseholder in England and Wales, you are required to pay rent to the freeholder or landlord of your property, known as ground rent. This guide will explain the meaning of ground rent, what it encompasses, when you need to pay it, and the latest legislation surrounding it.

Why Do You Pay Ground Rent?

When you own your home as a leaseholder, you own the property but not the land it sits on. Ground rent is the payment you make to rent this land from the freeholder. It is estimated that  approximately 4.5 million households in England and Wales own their homes on a leasehold basis.

You pay ground rent annually to the freeholder, often an investment firm, which grants you the right to live in the property under the terms of the lease.

What’s Included in Ground Rent?

Ground rent typically covers the maintenance and repair of the building’s structure and any common areas, such as guttering. It also includes the cost of building insurance and the upkeep of communal grounds or private accessways. Your lease will detail precisely what is included, so it’s essential to review it carefully.

How Much Ground Rent Will You Need to Pay?

The amount of ground rent varies based on the type and location of the property. For most ex-local authority flats, it ranges from £20 to £50 per year, while private flats can range from £150 to £600 annually. Historically, freeholders sometimes requested a peppercorn as a symbolic gesture to enforce the lease terms, giving rise to the term "peppercorn rent," which now refers to a very low or nominal ground rent amount.

Ground rent is usually payable by leaseholders every three months, six months, or annually.

Fixed and Escalating Ground Rent

Ground rent can be categorized into two types:

Fixed Ground Rent: remains constant throughout the lease term.

Escalating Ground Rent: increases over the lease term.

Your lease agreement should specify the lease term, the type of ground rent, the amount you will pay, and, if it's escalating, when and by how much it will increase.

Ground Rent Review

Leases may include clauses allowing for periodic reviews of ground rent, often every 5, 10, or 25 years. These clauses typically permit the freeholder to raise the ground rent at each review.

Can Ground Rent Be Reduced?

Reducing ground rent is uncommon, but becoming a freeholder might be an option. This usually requires at least half of the leaseholders in a building to purchase the freehold. If you’re interested in buying a share of the freehold, it's advisable to seek legal advice due to the complexity of the process.

Felicity J. Lord: your local property experts

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