Leasehold Ground Rents

What are Leasehold Ground Rents?

An annual sum payable to the Freeholder/Landlord on leasehold properties (flats or houses).

The Ground Rent payable for a property is governed by the terms of the Lease.


Historically, Ground Rents were a modest/nominal annual sum.

It is common for Ground Rents to rise gradually over the Lease term to reflect inflation (e.g. every 25 years), however, recently Freeholders/Developers have started to introduce more onerous Ground Rents with more frequent increases.

Leasehold Houses

Most houses are freehold and are therefore unaffected by Ground Rents.

Leasehold houses are becoming increasingly common with Developers/House Builders.  This is because they offer the Developer/House Builder the opportunity to charge an annual Ground Rent (such additional income can be considerable over a large development) and increase the value of the Freehold so that this can be disposed of for profit at a later date. 

There is no real need for houses to be leasehold, unless they benefit from common areas, such as communal gardens, parking, accessways or private roads.  Even so, there are other ways of dealing with these communal areas without requiring the title to be leasehold.

Leasehold Flats

All flats/apartments/maisonettes are generally leasehold, which means that you do not own any land as such, only a right to use and occupy the flat/apartment/maisonette for a fixed period of time.  The terms governing the use and occupation of the flat are contained in the Lease.

What are the risks?

Your Lease could be classed as an Assured Shorthold Tenancy (AST)

If the Ground Rent in your Lease rises to above £250 per annum (or £1,000 per annum for properties in Greater London), there is a risk that your Lease could be classed as an Assured Shorthold Tenancy (AST).  This will only be the case if your Lease also meets the other criteria for an AST set out in the Housing Act 1988.  The problem with your Lease being classed as an AST is that the Freeholder/Landlord can potentially bring the Lease to an end by proving one or more of the grounds for possession set out in Schedule 2 of the Housing Act 1988.  One of these grounds relates to non-payment of Ground Rent.  In other words, if the Freeholder/Landlord can prove that you have not paid your Ground Rent, then the Freeholder/Landlord can apply to the Court for a Possession Order, which the Court must grant providing the arrears are proven.  You would ultimately end up losing your Property, which would revert back to the Freeholder/Landlord for merely failing to pay your Ground Rent on time.  This is not usually the case for long-leases; where the Freeholder/Landlord would have to serve a Section 146 Notice setting out the alleged breach, giving you time to remedy it, before eventually initiating forfeiture proceedings.  The latter is much more onerous for the Freeholder/Landlord and you would have more opportunity to pay the arrears and avoid losing your Property.

Your Property could be unmortgageable or unsaleable

UK Finance (formerly the Council for Mortgage Lenders (CML)) sets out issues in their Handbook for conveyancers to consider when acting for the lender on a Property purchase.  Along with other factors, such as Lease length and the level of Service Charges etc., the level of Ground Rents in a Lease and the rate at which they increase can impact on the borrower’s affordability and, also the future value and saleability of the Property

If the Ground Rent in your Lease is, or will rise to, above £250 per annum (or £1,000 per annum for properties in Greater London), then the lender is also at risk as, in the circumstances set out above, the Freeholder/Landlord can potentially obtain a Possession Order which not only leaves you without a property, but your lender without any security for your mortgage.

Conveyancers are now very aware of this issue and are reporting such Ground Rents to lenders to check whether they are still prepared to lend where the Ground Rent could exceed the levels stated above.  Some lenders are, apparently, refusing to lend in such circumstances.  This effectively means that your Property is unmortgageable and has a big impact on its saleability or value.

You could pay significantly more for a Lease Extension or to buy the Freehold

All leasehold interests, whether for houses or flats, are diminishing interests.  In other words, the value of the house/flat decreases as the Lease term reduces.  Eventually, if the Lease were to run out, the leaseholder would no longer have any interest in the Property and the value would revert to the Freeholder.

In order to prevent this, leaseholders of flats and houses have a statutory right to either extend their Lease or purchase the Freehold.  The rules are slightly different for houses and flats, but the process is essentially the same. The price is assessed based on the market value of the Freehold interest, taking into account the difference in value between the leasehold interest and the Freehold interest and the loss of Ground Rent to the Freeholder. 

Where the Freeholder has put in place an excessive Ground Rent and/or frequent increases to the Ground Rent payable, this can result in the value of the Freehold interest being considerably more than if only a nominal Ground Rent was in place.  You will then be left having to pay a far higher Premium for a Lease Extension or higher Price to purchase the Freehold.

What can I do?

1. Check your Lease – find out what your current Ground Rent is, the dates on which it increases and by what amounts.  If you do not know where to find a copy of your Lease or cannot locate the correct provisions, please contact us to assist.

2. Does your Ground Rent increase to £250 or more (or £1,000 or more in Greater London)? – If so, you need to take steps to do something about this. 

3. Consider your Options:-

a) Approach your Freeholder – see whether your Freeholder/Landlord would be prepared to change the terms of your Lease to reduce the Ground Rents payable going forward.  This is known as a Deed of Variation.  The Freeholder may, in light of recent press commentary and proposed government action, offer reasonable terms.  However, other Freeholders may see this as an opportunity to charge a Premium and make more moeny.

b) Consider extending your Lease – if you go for a statutory Lease Extension, as long as you qualify, the Freeholder must extend the term of your Lease by an additional 90 years and reduce the Ground Rent to ‘a peppercorn’ (effectively nothing).  However, if you have a high Ground Rent with frequent increases, the Premium you will pay for your Lease Extension could be considerable.  You should obtain a valuation from an experienced Surveyor to assess the likely costs.  Lyndales can assist with the legal aspects of extending your Lease.

c) Consider purchasing the Freehold – as with extending your Lease, you need to consider the value of the Freehold.  If your own a flat, you also need to consider whether your fellow flat owners in the Building are prepared to purchase the Freehold with you as you will need at least 50% of the long-leaseholders in the Building to participate.  Lyndales can advise on whether you qualify, the procedure and the benefits of purchasing the Freehold.

d) Do nothing – due to recent press coverage of this issue, the government have indicated that they will consult on the introduction of measures to deal with unreasonable Ground Rents.  It is therefore possible that legislation will be introduced restricting the application of high Ground Rents which could potentially mean that Freeholders are no longer entitled to collect/demand them, however, at this stage, it is not clear what, if any, measures will be introduced and when, and whether these will apply retrospectively or not.

Kay Piper, Partner at Lyndales Solicitors

< Back