Understanding Ground Rent: What You Need to Know

Ground Rent vs. Service Charge

Don't mix up ground rent with service charge! While service charge covers the costs of maintaining building facilities and services, ground rent is what you pay the freeholder for owning the property and letting you live there.

The £250 Ground Rent Rule

If your ground rent is over £250 (£1000 in Greater London), there are some important things you should know.

Repossession Risk

Ground rent over these thresholds means your lease might be considered an assured tenancy. If you fall behind on ground rent by three months, your landlord could potentially repossess your property. They can issue a notice under section 8 of the Housing Act 1988, which allows for repossession without the lengthy forfeiture process.

Mortgage Concerns

Lenders are often wary of properties with high ground rent. Many won’t lend on properties with rents exceeding £250 outside London or £1000 in Greater London. They’re also cautious about leases where ground rent increases in the first 21 years.

Selling Challenges

Even if you don't need a mortgage, future buyers might. If your property's ground rent is high, potential buyers could struggle to get a mortgage, making it harder for you to sell.

The Government's 2022 Solution

The Ground Rent Act 2022 helps future leases by capping ground rent at a ‘peppercorn rent’ (essentially nothing). But if your lease was granted before 30th June 2022, here are some options to consider:

Deed of Variation

You can negotiate with your landlord to lower your ground rent through a deed of variation. Be aware, landlords might charge a fee for this.

Indemnity Policy

An indemnity policy can protect you if you can’t resolve the ground rent issue. It’s an insurance policy that covers the defect but doesn’t lower the ground rent or help if your landlord seeks repossession.

Lease Extensions

Extending your lease can reduce your ground rent to a peppercorn. This process can be formal (statutory) or informal. Formal lease extensions have specific requirements, like being registered at HM Land Registry for at least two years. Both options usually involve paying a premium and covering legal and surveyor fees.

Navigating ground rent can be tricky, but understanding these points can help you make informed decisions. If you're facing high ground rent, explore your options and consider seeking professional advice.