What is ground rent?

If your property is leasehold rather than freehold, you will usually be required to pay ground rent to the freeholder or landlord. This is an annual or quarterly charge that can increase over time. If you own a flat rather than a house, you will also be asked to pay service charges, which are separate from the ground rent.

At Lockings Solicitors, we deal with leasehold sales and purchases. We have wide experience of leasehold conveyancing in East Yorkshire and beyond and an excellent reputation for the client service we provide.

We know that you will probably want to move house promptly and we always work to avoid delays. We have the expertise to deal effectively with difficulties, should any arise. Buying or selling leasehold property is more complex than dealing with freehold properties and it is important to use conveyancers with wide understanding of the legal issues involved.

We offer a FREE initial chat so that you can ask us any questions about ground rent or other leasehold issues. Call us on 01482 300 200, email us at welcome@lockings.co.uk or fill in our Free Online Enquiry and we will call you back promptly. We have offices in Beverley, Hull and York and represent clients across the East Yorkshire area.

Who has to pay ground rent?

Most leasehold property owners have to pay ground rent. Your lease will specify how much is payable. The freeholder is not required to provide anything in return for the ground rent payment; it is purely a charge paid in respect of your ownership of a leasehold interest in the property.

Ground rent is different to service charges, which cover the freeholder’s expenses in respect of items such as buildings insurance, repairs, maintenance, utilities to communal areas and communal gardening costs.

Do I have to pay ground rent?

If the freeholder requests ground rent from you by sending you a formal demand, you must pay it. The demand should include the following details:

• Your name, as the leaseholder
• The freeholder’s name and address
• The period for which the ground rent bill is
• The amount of ground rent to be paid
• The deadline for making the payment

If ground rent is not paid, the freeholder can take legal action against you to recover this. You can be required to pay up to six years of outstanding ground rent.

If ground rent has not been paid for three years or more and you owe £350 or more in ground rent or ground rent and service charges combined, the freeholder can ask the court for a forfeiture order. This is an order requiring you to forfeit the lease, meaning that you could lose your property. If you are in dispute with your freeholder over ground rent or other charges, you are advised to speak to a solicitor promptly.

How much is ground rent?

The lease will set out how much ground rent the freeholder can request. This could be a fixed sum or there may be scope for it to be increased, either by a percentage or in line with the Retail Price Index or other measure.

What is the ground rent scandal?

From the early 2010s, some developers included clauses in the leases of the houses and flats they were selling that required the leaseholders to pay ground rent on an increasing scale. In some cases, the ground rent doubled every ten years or less. This meant that over time, the amount payable escalated and properties became difficult to sell. Developers sold the freeholds and the accompanying right to collect the ground rent to other companies.

In 2017, the scandal came to the attention of national media and consequently, steps have been taken to remedy the situation.

The Competition and Markets Authority has obtained undertakings from some of these companies not to double ground rents. On 30 June 2022, it became unlawful to include a ground rent clause in a new lease. However, existing ground rents must still be paid.

Who collects ground rent?

The freeholder or their managing agent has the right to collect ground rent. Developers often sell the freehold to businesses that specialise in dealing with leasehold property and they will then have the right to collect the ground rents for a development.

How often is ground rent paid?

Ground rent is often paid annually, but the lease may allow the freeholder to collect it on a six-monthly or quarterly basis.

What happens when you sell a property that is subject to ground rent?

If you are selling a leasehold property, the buyer’s solicitor will ask for evidence that the ground rent has been paid up to date. We will obtain a receipt for the most recent payments from the freeholder together with confirmation that there are no arrears.

How do you get rid of ground rent?

There is currently no legal right to buy out a ground rent on its own, however there are a couple of other options.

As a leaseholder, you will probably have the right to extend your lease in return for the payment of a premium to the freeholder. Provided that you have owned the property for two years and the lease is a ‘long lease’, ie. it was originally granted for a term of more than 21 years, you can follow a formal process to obtain a lease extension.

If you qualify, you will have the right to extend the lease of a flat for 90 years and the lease of a house for 50 years. When the lease is extended using the formal lease extension route, the ground rent will be reduced to a negligible sum, known as a peppercorn.

A second option is to purchase the freehold. Again, most flat and leasehold house owners will have the right to do this. If you own a flat, you will need to work with the other flat owners to do this. The process is known as collective enfranchisement. The building will need to qualify, and at least half of the tenants will need to participate in the purchase, or both tenants if there are only two flats.

If you are able to purchase the freehold, you and your fellow flat owners can eliminate the ground rent.

Leasehold and Freehold Reform Act 2024

The new Leasehold and Freehold Reform Act will regulate ground rent once it is implemented and end forfeiture when the sums owed are low.

The amount of ground rent payable is used when calculating the premium to be paid for purchase of the freehold or extending a lease. The ground rent figure in these calculations will be capped at 0.1%, meaning for some leaseholders, it may be cheaper to buy their freehold or extend their lease in the future.

Those with over 150 years remaining on their lease will have the option of buying out their ground rent only without needing to extend their lease.

Contact our East Yorkshire leasehold property solicitors

If you are considering buying or selling a leasehold property, we will be happy to help.

You can ring us for a FREE initial chat on 01482 300 200, email us at welcome@lockings.co.uk or fill in our Free Online Enquiry and we will call you back promptly. We have offices in Beverley, Hull and York and represent clients across the East Yorkshire area.