Ground Rent Definition
Ground rent is a fee that the leaseholder of a property pays to the freeholder of the property and this is because the freeholder owns the land (ground) on which the property lies.
Remember that a freeholder owns the land while the leaseholder just has a long-term lease to use the property.
You’d only have to pay ground rent where the tenure of a property is leasehold. If you are the freeholder then there is no ground rent to be paid.
But this is all changing in the UK.
Who Pays Ground Rent When Renting?
The leaseholder is the one who is liable to pay ground rent, not the tenant.
For example, let’s consider a block of apartments where each apartment is sold on a leasehold basis.
If someone buys one of the flats to live in, they will be a leaseholder who pays the ground rent to the freeholder.
Now if the same person (the leaseholder) decides to rent the property out and turn it into a buy-to-let, it doesn’t change the fact that they are still the leaseholder.
If the leaseholder rents it out to a tenant the tenant will pay them rent, but the leaseholder will still have to pay the ground rent to the freeholder.
The tenant doesn’t pay the ground rent.
Is Ground Rent Going To Be Abolished UK?
The Leasehold Reform (Ground Rent) Act 2022 made changes to how ground rent is defined in law and restricts what freeholders can charge.
Since the act, ground rents on new leases are limited to no more than one peppercorn per year, which in legal speak basically means it’s of no financial value.
The act essentially ended ground rents on most new residential leasehold properties in England and Wales. The key wording here is ‘new’.
However, if you renew a lease then there should be no ground rent on the new lease.
See the link below to see more information regarding the act as there are some exceptions to the rule like business leases and community-led housing.
Peppercorn Ground Rent
In the past peppercorn ground rent just meant low value.
But the Leasehold Reform Act 2022 defines peppercorn rent to an annual rent of one peppercorn.
And all new leases can only ask for ground rent of one peppercorn, essentially reducing financial liability to zero.
This means most new leaseholders will not be faced with financial demands for ground rent and landlords are also not allowed to charge admin fees for this peppercorn rent.
The peppercorn is more symbolic than literal.
Basically, no ground rent on most new and renewed leases.
Is Ground Rent The Same As Service Charge?
Ground rent is easy to confuse with service charges, but they are not the same thing.
Ground rent is simply a payment from the leaseholder to the freeholder of the land to be able to use the land.
On the other hand, a service charge is more for maintenance and running costs of the building.
For example, if there is a block of apartments, the service charge could cover things like cleaning and maintenance of communal areas like cutting grass or cleaning hallways.
What the service charge covers will depend on each individual development so it’s important to check your lease properly to see what is and isn’t included in the service charge.
Video About Ground Rent
Here’s a quick video that goes over the basics of ground rent.
Further Reading
If you’re a bit confused about freehold and leasehold read our post that goes through the meaning of tenure in property.
After reading this post you’ve become a little smarter about property in the UK.
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