What is ground rent? How do I avoid it?

We take a look at ground rent, why it needs to be paid and how you can get rid of it. We’ll aim to answer all the most frequently asked questions on ground rent and some related topics around owning a leasehold property.

What is ground rent?

Ground rent is a regular payment to the freeholder that you’ll need to make if you own a leasehold property. It is charged by the freeholder, though it may be collected by a management services company.

Why do you pay ground rent?

As a leaseholder, you need to pay ground rent because the freeholder owns the land and you pay them to ‘lease’ the land that your property is on. While there is reform underway on ground rent in the UK, currently leaseholders lease the land and the actual property separately.

Who pays ground rent?

The leaseholder normally pays ground rent to the freeholder, or sometimes to a superior leaseholder. The terms of your lease should say when, and how much, the payments should be. It will also say how often it can be increased, and by how much.

What’s included in ground rent?

Ground rent is literally the charge for renting out the land from the freeholder, it doesn’t include any extra services. Usually, if you’re paying ground rent as a leaseholder, you will also be paying annual service charges. This is generally a flat fee charged by a management company – on behalf of the freeholder.

Annual service charges may include things like the cleaning of communal areas, upkeep on gardens, and the use of any on-site facilities, such as a gym or swimming pool.

What is a typical ground rent?

A typical ground rent is usually up to £400 per year, but can be more, depending on the terms of your lease. You need to read the terms of your lease very carefully, as some unscrupulous freeholders may increase ground rents regularly, and by large amounts.

How is ground rent calculated?

In the UK, there is no set way to calculate ground rent. Freeholders can technically charge whatever they want for ground rent. In reality, any more than £500 per year, or £1,000 for London properties, would likely be viewed as excessive.

The potential for freeholders to exploit ground rent by overcharging is the main reason that set off the ‘Ground Rent Scandal’. This, in turn, has led to the proposed reforms to ground rent through the current parliamentary bill.

How do I get rid of ground rent?

If you’re a home owner in Wales or England you cannot buy out your ground rent. However, you may be able to gain a share of the freehold. To do this, you and at least half of the other leaseholders would need to buy the freehold of the building.

We look at the benefits and drawbacks of doing this in our article What does share of freehold mean?

What happens if I don’t pay it?

If you don’t pay your ground rent the freeholder can take legal action against you. They can get a court order that will allow them to recover the money you owe them. They can also regain possession of the property from you by bringing what’s called a forfeiture action. However, they can only do this once you have owed them ground rent for at least three years and owe them at least £350.

Will ground rent be abolished?

Ground rent is not going to be fully abolished. However, it is undergoing significant reform.

The Leasehold Reform (Ground Rent) Bill is making its way through Parliament at the time of writing (08 October 2021). The bill will abolish ground rent for all ‘new long residential leases’ and leases on retirement homes. Long residential leases are those that last for over 21 years.

The Government claims that this will benefit around 4.5 million UK leaseholders. It will also serve as the start for a process of major reform on leasehold property management in general.

Can a landlord increase my ground rent?

A landlord can only increase your ground rent if the terms of that increase are set out in your lease. For example, some leases state that the ground rent will increase according to the rental value of the property. Or, it may increase by a fixed amount at certain times.

How often do you have to pay it?

Ground rent is normally paid annually. However, it may also be paid bi-annually (every six months) or quarterly (every three months). This will be stated in the terms of the lease.

What is the ground rent scandal?

The leasehold and ground rents scandal refers to the way that some freeholders in recent years have included unfair ground rent charges in their lease terms. This allowed them to increase ground rent so much that leaseholders could no longer afford it and struggled to sell their properties.

If you think you’ve been affected by unfair leasehold practices, follow the Government’s investigation into the issue here. In the latest development (4th September 2020), the UK’s top 4 housebuilders – Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey, are being investigated for unfair practices around the selling of leasehold homes.

Find answers to more of your property-related questions in our HomeViews Guides articles.

HomeViews provides verified resident reviews of the UK’s housing developments. We’re working with developers, landlords and the Government to recognise high performers and help to improve standards in the built environment.

The post What is ground rent? How do I avoid it? appeared first on HomeViews.

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