Property ownership will be one of two types: Freehold or Leasehold. If a property is owed freehold then the owner owns the property and the land that it sits on. If the property has been bought as a leasehold, all the “owner” has really purchased is a right to live in the property for an extended period of time. The leaseholder is the owner of the lease which gives them the right to live in the property but they have a landlord who owns the physical property and the land upon which it sits. As part of the lease, the leaseholder will typically pay the landlord certain fees such as maintenance fees and ground rent. Leaseholds are much more common in flats where there are multiple residencies and the building and land itself is owned by a 3rd party. It does also occur in houses, but this is more rare. In this article we will take a look at ground rent in more detail and also cover the recent Leasehold Reform (Ground Rent) Act 2022.
What is Ground Rent?
Ground rent is a fee payable by a leaseholder to a landlord for the occupation of the ground that a leasehold property sits on. It is essentially renting the land on which the property sits. Depending on the lease type the ground rent is either payable monthly, quarterly, half-yearly or on an annual basis.
There are two types of ground rent, which are: Fixed and escalating. Fixed ground rent is where the lease agreement defines one ground rent payment which is fixed for the duration of the lease. So, if the leaseholder pays £300 per year at the start of the lease, they will pay £300 per year at the end of the lease. Escalating means that the lease agreement allows for increases in ground rent over the period of the lease. Anyone purchasing a leasehold property will need to understand what type of ground rent process is relevant in the lease and, if it is escalating, how the ground rent will escalate.
How much is ground rent?
Typically ground rent is anything from a peppercorn, which is a legal term for a very low or nominal rent, typically zero rent, to thousands of pounds a year. For an average property it tends to be between £300 and £700 per annum. It is worth noting that if the ground rent is over £250 per annum, then the lease could be classed as an assured tenancy which means that the landlord has greater powers of re-possession under section 8 of the Housing Act 1988 if the ground rent is not paid.
Leasehold Reform (Ground Rent) Act 2022
Brought into force in June 2022 the Ground rent reform act essentially ended the practice of ground rent being charged on leasehold properties after the introduction of the act. This includes new leases and lease extensions. Under the new Act the maximum amount that can be charged is a Peppercorn which, as we have mentioned is essentially zero value. This act does not affect leases entered into before the 30th of June 2022.
Ground rent is very common in flats and not unheard of in houses. Although the new Leasehold Reform (Ground Rent) Act 2022 has abolished ground rent for new regulated leases after the 30th of June 2022 there are still many properties which have a ground rent charge and there are still exemptions from the Act which will allow landlords to charge ground rent on leasehold properties. It is important when buying a leasehold property that the charges are fully understood and considered.
