For those who are buying a property, the concept of paying rent to someone may seem a little alien. After all: rent is something that you usually pay to a landlord, and for a homeowner the main burden is the mortgage. However, it’s actually a little more complex than it seems. While the main financial burden on a homeowner is the mortgage repayments, ground rent can also come into play for some homeowners.   Put simply, ground rent is an additional amount which many people who own leasehold properties have to pay. It’s charged by a “landlord”, although the more accurate term is perhaps “freeholder” – the person who owns the land, and ultimately owns the lease. This article will explain what ground rent is and will also explore what the rent level might look like in price terms, and how high ground rents are, in some cases, causing scandal.  

Leasehold or freehold?

  Usually, ground rent is a concern for those who own their property in a leasehold fashion. When you own a “long lease”, as it is known, you usually own the interior of the property – such as the fixtures and fittings and the actual inside space – for an amount of time defined by the terms of the lease, but you do not own the land on which it is built. This applies most commonly in flats, but sometimes this can happen in houses too – especially if the property is a new build, on which high ground rents are becoming increasingly common.   If you have a leasehold property, ground rent is normally charged by someone called a “freeholder”. The freeholder of a property is the person who owns the ground – and who the property will in theory revert to once the lease expires, unless one of the owners of the lease chooses to renew it at some stage. Ultimately, this is the mechanism by which people who own their own property may also end up paying rent as well.  

Ground rent prices

  In many cases, ground rent is not particularly high. It’s often as low as £50 a year – which, while still an annoying sum to have to pay, is not insurmountable on a month by month basis. In some cases, former local authority properties which are now being sold on the open market could have a ground rent which is just “peppercorn” in nature and may be less than a pound a month. There is no predetermined formula for working out what the ground rent should be – although if you’re buying a property, it’s well worth investigating this with your solicitor or conveyancer and ensuring that you have a strong idea of what you will be liable to pay before you move ahead with exchanging contracts.  

Demands for ground rent

  There are certain conditions associated with any request from a freeholder for you to pay ground rent. If they want to charge you what they’re entitled to, they will need to send you a demand in writing. This must contain all sorts of information in order for the recess for ground rent to be legitimate, including everything from the name and address information of the person who is the freeholder to the duration of time which the ground rent payment is scheduled to cover.   In the event that you don’t pay up, one of several things could happen. It’s possible that the freeholder will take you to court in order to secure the amount you owe. It’s even possible under the law for the freeholder to take over your property before the lease term ends, a process known as “forfeiture” – and which would lead to you losing your property. There are strict rules around doing this though. The freeholder is not eligible to do this unless you owe £350 or more, and the debt also has to have been accumulating for 36 months or longer.  

The ground rent scandal

  In recent years, however, ground rents have started to creep up in some particular types of property. Often, it’s those which have been developed in order to further private interest and build profit, such as new build properties, which levy high ground rents on those who purchase the properties. In some cases, it can be as high as several hundred pounds a year – which can make a very material difference to those who are already paying a mortgage and other bills.   Due to the inflation of ground rent by property developers, there is a prediction now in place that some homes may be paying £10,000 each year in ground rent by the year 2060. There’s another compounding element to the problem — some mortgage lenders will refuse to lend if the ground rent is particularly extortionate, meaning that the seller of a property may find that they can only shift their ground rent property if a large discount is levied. This, in turn, could lead to a decrease in equity – or even negative equity.   In summary, ground rent is another unavoidable fact of life for many people. If you own a leasehold property, as many people do, it’s likely that you’ll have to grapple with it at some stage or another. However, as this article has shown, it might not necessary be a high sum – and given the ground rent scandal which has emerged in recent years, it may be that people will begin to clamour for a change in the law in the coming years.   Are you looking to sell your property quickly, perhaps due to complications around the leasehold – or, indeed, any other issue? If so, Spring may be able to help you. Find out more by going to this link.

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