What is ground rent?
If you are the lessee of a leasehold property, generally you will have to pay an ongoing sum of money to either the freeholder or the landlord. This is due to the fact that, because a leasehold is a temporary right to occupy the property, you owe them rent. The annual sum of money is known as ground rent. Sometimes a head lease is in place which will make ground rent payable to another party but ultimately it is still paid to the freeholder or landlord.
The frequency with which ground rent is due is also specified by the lease. Most often it is paid on an annual basis, but may also be payable every six months or every quarter. Changing the frequency with which ground rent is paid may be something that a lessee can negotiate with their landlord or freeholder.
The amount of ground rent that a lessee owes their landlord or freeholder is set out in the terms of the lease. Ground rent can either be fixed or escalating, in which case it will increase by fixed amounts at intervals. Doubling ground rents have caused a great deal of controversy in the UK in recent years.
Do I have to pay my ground rent?
A lessee must pay their landlord or freeholder ground rent only when the latter formally requests it of them. A formal request is posted to the address of the leasehold property unless the lessee specifies otherwise. In order to be valid, the demand must be in writing and must include the following pieces of information:
- The name of the lessee
- The period of time that the demand covers
- The amount of money that the lessee must pay
- The name and address of the freeholder (and the managing agent if payments are being made to them)
- The date on which the ground rent is due (or the date that was specified in the lease, if the lessee is overdue in paying their rent)
If your freeholder or landlord has issued you with a demand for the ground rent on your property and you do not pay it, they are entitled to take you to court to recover the debt and even begin the legal process of removing you from the property (forfeiture proceedings).
A landlord or freeholder is only entitled to begin forfeiture proceedings if:
- The amount of ground rent payable is £350 or more, or
- The lessee has been in arrears for three years or more
However, in some cases the amount of ground rent owed on a property is so small that an absentee landlord may neglect to request it. In this case, you do not have to pay.
What is a peppercorn ground rent?
A peppercorn rent refers to a ground rent so low as to be negligible. The term ‘peppercorn’ is used because it reflects the fact that a peppercorn payment is a tiny nominal sum, paid only to satisfy the terms of a legal contract (in this case, the lease).
If you have extended your lease, it is likely that you will be paying a peppercorn ground rent. This is due to the fact that, under the terms of the Leasehold Reform Act of 1993, a leaseholder is entitled to reduce their ground rent to peppercorn when they extend their lease by 90 years.