More and more people are occupying properties under long leases. Unlike freehold ownership, a long leaseholder may well have to make monthly, quarterly or annual payments to his or her landlord (being the freeholder of the building, or land, in which your property is situated or a leaseholder under a superior lease to that which you benefit from) (“Landlord”) by way of ground rent.
Ground rent is payable in addition to service charge (a charge levied for the Landlord’s costs and expenses of managing and maintaining the building or land). Should there be a dispute between you and your Landlord about ground rent, the consequences of failing to pay are much more worrisome.
What is Ground Rent?
Ground rent is a sum of money payable under a long lease of a property by you, a tenant, to your Landlord (“Ground Rent”). The amount of money payable by way of Ground Rent, and any other terms about the arrangements for the payment of the same, will be set out in the terms of your lease.
In most circumstances, Ground Rent is a nominal amount. However, this is not always the case and proposed purchasers of long leasehold interests should be mindful of any terms in the lease which allow the Ground Rent to be increased and on what basis any increase is calculated.
The normal position, in respect of Ground Rent (unlike service charge), is that it will be payable on the dates set out in the lease, whether or not it has been formally demanded. The lease pursuant to which you occupy any property will set out your obligations, i.e. payment dates, in respect of the Ground Rent payable.
Demanding a Demand
The exception to this is where your Landlord, under a lease for a term of 21 years or longer, must complete a form in respect of any unpaid ground rent before such rents are lawfully due. Section 166 of The Commonhold and Leasehold Reform Act 2002, sets out the prescribed form that your Landlord must use in order to properly demand unpaid Ground Rent. There are a number of things that the notice must contain, including but not limited to the amount due and the date on which payment must be made.
A s166 demand is not a straight forward form and there is a great deal of room for error. The Ground Rent due under a lease will not be formally recoverable, and therefore your Landlord cannot take any steps to enforce its rights in respect of a default in payment, until such time as a valid s.166 demand is served. It should be noted that your Landlord’s failure to serve a valid s166 demand does not extinguish his or her right to the unpaid Ground Rent but simply postpones your Landlord’s ability to recover it until such time as a valid demand is served albeit subject to the 6 year rule set out below.
The sky is the limit or is it?
Essentially your Landlord’s entitlement to Ground Rent is a contractual right and therefore the normal limitation periods, as set out in the Limitation Act 1980, apply.
Assuming, if appropriate, your Landlord has served you with a valid s166 demand in respect of the unpaid Ground Rent, the limitation period for a claim for unpaid Ground Rent is 6 years. Therefore, unless your Landlord makes a claim for historic unpaid Ground Rent within 6 years of it falling due, he or she will lose the right to pursue you for it.
The price you pay for non-payment
By not paying the Ground Rent due under a lease you are at risk of your Landlord taking steps to forfeit the same. Again, the circumstances in which your Landlord’s right to forfeit your lease arise will be set out in your lease.
Assuming that those criteria are met, it is open to your Landlord to pursue forfeiture proceedings in circumstances were the unpaid Ground Rent exceeds £500.00 or, where the amount outstanding is less than £500.00 but has been outstanding for more than 3 years.
Your Landlord would have to issue proceedings in the local county court. Although the initial cost of doing this would be for your Landlord to incur (which may well put him or her off doing it if the amount in issue is nominal), you should be aware that there may well be a clause in your lease that entitles your Landlord to recover from you his or her costs of bringing those proceedings. Further, the once court proceedings are issued, the court has discretion to make an order requiring one party to pay another’s costs.
If your interest in the property is subject to a mortgage, your Landlord may also contact your lender requesting payment. Subject to the terms of the mortgage, your lender may well comply and simply add the amount paid out to your mortgage which may in turn increase your monthly payments. You could also be at risk of triggering your lender’s right to call for immediate satisfaction of the mortgage in full (if such a right has been reserved).
If your Landlord takes steps to obtain possession by way of forfeiture proceedings, you may, in certain circumstances, be able to apply for relief from any such action. You would however need to agree to pay what is properly due either in full or by way of a payment plan agreed with your Landlord.
A long lease is an incredibly valuable asset and as a tenant you will not want to run the risk of losing it on a point of principle.
What you should do next
The true position will depend on the facts of the dispute and the terms of your lease. If you are having problems relating to the Ground Rent payable under your lease you should consider taking legal advice, especially if you intend to contest that the Ground Rent is due and withhold payment of the same.
Liberty Chappel, Solicitor at Pemberton Greenish LLP