Ground rent

GROUND rents have been a recent topic of interest in the media and I would like to discuss the issue further and how it may or even may not affect us.

A ground rent is simply a charge that a leaseholder of a property must pay to a freeholder. For instance, a block of flats may all be individually owned by separate people. Sometimes these leasehold properties would have shared or joint ownership of the site or land and the chain of ownership would stop there, but what is also a more common arrangement is that there is a freeholder who owns the land which the flats may occupy. In this circumstance, a ground rent may be required to be paid by the leaseholders to the freeholder as a literal rent for usage of the land.

This can be a payment of as little as £10 a year known as a ‘peppercorn’ rent. It can also be as high as £400 a year with the potential on increasing annually.

A ground rent should not be confused with a service charge, which is a separate payment made for services like maintenance and gardening for a property(s). Service charges can also sometimes be high but they usually cover many aspects of site management, upkeep, and buildings insurance. Historically, there have been very few houses that are leasehold and it has only been more recently that developers have started to produce new houses that are leasehold.

If you already own a leasehold property, you are no doubt already familiar with the charges that you incur but the media and government have been alerted recently due to new builds and newer leasehold properties being produced with ground rents that have started ringing alarm bells.

Usually a long lease term of 125 years is offered or even 999 years which is deemed ‘as good as freehold’ but there are clauses such as an elevated ground rent for example which can catch people out.

A recent publicised article was referring to a freeholder who made a fortune from charging ground rents on developments across the country. The ground rents were also subject to increasing and over a long period of time, could reach an alarming amount which would render some properties very difficult to sell (some double every five or ten years).

With this issue being brought to light, the government have now proposed a ban of new leasehold houses being sold by developers and restricting ground rents on new build flats too. This would stop future buyers becoming victims to extortionate ground rents that are imposed by developers and give peace of mind back to those who may be unaware of the implications ground rents pose. This is a future safeguard but up to 100,000 are reported to still be ‘trapped’ in their property, paying higher than average ground rents and face the difficulty of selling on, should the time come. It is still undecided how the current ‘trapped’ individuals will be helped.

This will only affect the minority of leaseholders and usually only affect the newer developments. Owning or purchasing a leasehold property is and will remain to be a common and hopefully hassle-free type of ownership, with many ground rents still being charged. It is important to understand the lease and the charges associated to it, and how these could change in the future. As previously mentioned, you will no doubt already understand these charges but if you are looking to sell your property, these will need to be fully explained to any potential buyer who may not be quite so familiar with these new types of ownership that they face.

This is where the benefit of using an informed and knowledgeable property professional comes into play that can guide and inform you on anything you need to know. If you are wondering how ground rents may affect you or if you are considering buying or selling a property with a ground rent associated to it, feel free to speak to us at any time and we will gladly assist you.