What is ground rent?
If you live in a leasehold property, you’ll be paying an annual fee called ‘ground rent’.
Ground rent is paid to the owner of the land your property is built on, otherwise known as the freeholder, or landlord. Ground rent essentially provides income to the landowner and has nothing to do with the maintenance of the building – that is covered by another fee you’ll pay, called a service charge.
When you moved into the property, you should have received an agreement called a lease. Your ground rent charges will be detailed in this document – if there is no mention of ground rent charges, legally, the freeholder will not be able to charge you ground rent.
Is ground rent paid monthly or annually?
Ground rent is typically a fairly small fee in comparison to monthly rent or a mortgage, so it will be paid annually. However, payment terms can sometimes be negotiated with the freeholder (the owner of the land).
Whatever the frequency, it’ll be due on a certain date and if you don’t pay on time your landlord could take legal action against you.
What is reasonable ground rent?
This is a tricky one as it’s difficult to define, ‘reasonable’. Generally speaking, ground rent should be proportionate to the value of the property – some say that could be either 0.1% of the value of the property, or £250 – however, there is no rule of law around this. Freeholders can charge what they want.
If ground rent becomes disproportionate to the value of the property it may affect your ability to sell in the future. If your ground rent is deemed as ‘high’, you may also find it difficult to secure a mortgage.
Can ground rent go up?
The freeholder can only charge you the amount of the ground rent detailed in your lease, which you have to agree to.
Although ground rent is usually a fixed fee, be careful of clauses in your lease that result in ground rent increasing automatically after X number of years – the ground rent scandal has come about after many leases have been uncovered to contain onerous clauses.
Everything you need to know about your ground rent will be detailed in your lease – the fee, the payment plan, automatic increases etc. The landlord doesn’t need to provide any service which isn’t outlined in the lease, such as cleaning or maintenance.
Your lease is your contract, but as mentioned above, it has recently come to light that tens of thousands of new-build properties – both houses and flats – have leases with onerous clauses, resulting in doubling ground rents and leaving homeowners unable to sell their properties or unable to get a mortgage.
If your lease contains onerous ground rent clauses, you may be able to claim compensation from your conveyancing solicitors if they did not advise you as to the existence of these doubling ground rent clauses. You can read more in our recent blog article here, or, request a call back from one of our leasehold experts.