Ground Rent

Ground rent is a payment made by a leaseholder to the freeholder under the terms of their lease. It is charged annually (or sometimes more frequently) and represents a nominal payment for the right to occupy the land on which the leasehold property sits.

Historically, ground rents were small nominal amounts: £50-£250 per year. However, some developers from the 2000s and 2010s inserted escalating ground rent clauses into leases, where the ground rent doubles every 10 or 25 years. A £250 ground rent that doubles every 10 years becomes £64,000/year after 80 years - at which point the property is essentially unmortgageable and unsaleable.

The Leasehold Reform (Ground Rent) Act 2022 banned ground rents above a "peppercorn" (effectively zero) on new residential leases granted after 30 June 2022. However, existing leases with escalating ground rents are still in force and can significantly affect value and mortgageability.

Before purchasing any leasehold property, check the ground rent provisions in the lease carefully. A ground rent review clause should be treated as a serious risk factor unless the escalation mechanism is capped at RPI or CPI.