If you’re planning to buy or already own a home, it’s important to understand the concept of ground rent, what it is, when it applies, and how it’s managed when owning a home in the UK. So, let’s dive in and unravel the mystery to ensure you’re well-informed about your rights and obligations.
What is ground rent?
It is a payment made by the leaseholder of a property to the freeholder, also known as the landlord or the owner of the land.
In essence, it is a form of rent for the land on which your home is built. The rent primarily applies to leasehold properties, where you own the property for a set period of time but not the land on which it stands.
When does it apply?
If you own a leasehold flat or house, you may be required to pay ground rent to the freeholder. The lease agreement, which outlines the terms and conditions of your leasehold, will include details about the rent, such as the amount to be paid, the payment frequency, and how it can be increased over time.
It’s important to carefully review your lease agreement before purchasing a leasehold property, as ground rent can significantly impact your overall financial commitment.
If you own a freehold property, you own both the building and the land it’s built on, and ground rent should not apply.
How is it calculated?
In the UK, there isn’t a standardised method for determining ground rent.
Technically, freeholders have the freedom to impose any amount. However, in practice, annual charges exceeding £500 or £1,000 for properties in London are considered excessive.
The ability of freeholders to take advantage of this situation and demand exorbitant rents sparked the infamous “Ground Rent Scandal.” Consequently, this has prompted the introduction of legislative reforms aimed at regulating the rent.
Who pays ground rent?
If you own a leasehold property, you are likely required to pay ground rent to the freeholder or landlord, as stated in your lease agreement.
As a freeholder, you might be required to pay this rent if your property ownership is based on a ‘share of freehold’ arrangement.
In this case, you hold the property as a leasehold while also owning a portion of the freehold. Such arrangements are typically found in apartment purchases. If your property is under a ‘share of freehold’ arrangement, the terms align with those of a standard leasehold, and you may still be obligated to pay this rent.
In some instances, freeholders might be charged a nominal ground rent of around £5 or less. This is a remnant of archaic laws still applicable in certain regions. For example, properties built in the 1930s might be subject to this nominal ground rent.
When is it paid?
The terms of your lease will specific payment schedule for the rent. But usually you pay annually.
Does the rent increase?
Landlords can only raise the rent if the conditions for such an increase are specified in your lease agreement. For instance, some leases may dictate that the rent will be adjusted based on the property’s rental value.
Alternatively, the lease may outline that the rent will increase by a set sum at specific intervals.
Need more help?
Understanding ground rent and how it applies to your property is essential for every UK homeowner. Having a good solicitor on standby is essential to understand the terms of any lease.
Last Updated: May 30th, 2023