In 2022, the government introduced legislation to abolish ever-increasing and exploitative ground rents on any new leases or extensions to existing leases. While this is an excellent change, The Leasehold Reform (Ground Rent) Act 2022 only applies to leases established or extended after June 2022.
Many leaseholders who entered their leases before the legislation continue to pay ground rent charges.
If this sounds all too familiar, here’s how you can reduce your ground rent expenses with a lease extension.
What is ground rent?
Ground rent is a contracted, regular payment that a leaseholder pays to their freeholder. It is usually paid to the freeholder in annual instalments.
The leaseholder pays ground rent to a freeholder in exchange for living on their land. It is not the same as a ‘service charge’ (which is for maintenance and upkeep of the building in which your apartment is located).
Paying rent whilst having a mortgage might appear absurd, but it’s a cost that comes with living on someone else’s land. After all, you own your flat, not the land it sits on.
What is the average cost of ground rent?
You will find the ground rent specified within your property’s lease or transfer documents.
Ground rent costs vary from lease to lease depending on the property and freeholder. It can be anywhere between as little as £50 and as much as £400 annually.
Issues regarding ground rent generally stem from the fact that there aren’t any regulated guidelines on how much a freeholder can charge. As a result, some people will get lucky and have to pay a low or ‘peppercorn rent’, while others may pay considerable fees.
The Leasehold Reform (Ground Rent) Act 2022 addresses this discrepancy and exploitation of leaseholders by ensuring that from 30 June 2022 onwards, ground rent on new leases will never be more than a ‘peppercorn’, which sets the rate to zero.
Learn more about this legislation in our ‘What Changes are the Government Making to the Lease Extension Process?’ article.
Do I still need to pay my ground rent?
Unfortunately, the 2022 Ground Rent Act does not apply retrospectively. Therefore, leaseholders with existing long-term leases agreed before 30 June 2022 will still be obliged to pay ground rent.
What happens if you don’t pay your ground rent?
You must always pay the ground rent since it is a condition of the contract.
If you don’t pay the ground rate set out in your lease, the freeholder can collect unpaid ground rent going back six years, and you may have to pay a total hefty amount at once. It could also result in the freeholder seeking to reclaim possession of the flat.
Although you are responsible for paying the ground rent, the freeholder must give you a formal, written notice beforehand. The freeholder’s ground rent demand notice should be sent to you 30 days before the due date.
The freeholder can take legal action if you do not pay the ground rent after you’ve received the demand.
Can my freeholder increase ground rent?
Whether your freeholder can increase your ground rate is stated in your lease, which is why you must read it thoroughly.
If your lease specifies the possibility of an increase in ground rent, then yes, the freeholder can do so. In contrast, if you have a fixed ground rent, your freeholder cannot increase it without your consent.
What is doubling ground rent?
A doubling ground rent is a clause that states that the ground rent will double at regular intervals throughout the lease term.
For example, your annual ground rent fee may be £100 and double at 10-year intervals.
- 1-10 years – £100 per annum
- 11-20 years – £200 per annum
- 21-30 years – £400 per annum
- 31-40 years – £800 per annum
As shown, doubling ground rent clauses can mount to extremely high fees by the end of the lease term.
Can ground rent be reduced?
Undoubtedly, extra money in people’s pockets would be beneficial during these difficult economic times. So it’s especially understandable when you see new leaseholders benefit from peppercorn rents in the 2022 Ground Rent Act.
Whether you’re hoping to reduce ground rent increases or eliminate your ground rent, you can take either step listed below.
Using a statutory lease extension to eliminate ground rent
Extending your lease is a more secure way of avoiding ground rent increases. To be eligible for the statutory lease extension, you must have owned your property registered for more than two years.
Under the Leasehold Reform and Urban Development Act 1993, a statutory lease extension would do the following:
- First, force the freeholder to reduce the ground rent to a peppercorn (zero).
- Entitle the leaseholder to an additional 90 years on top of their current lease term (from the date the Section 42 statutory notice is served).
- Protect the leaseholder’s current investment and potentially increase the property’s value.
If this route sounds appealing, there is no better time to start acting, as the shorter the lease term gets, the more expensive a lease extension becomes.
Leasehold Extension Specialists
At The Lease Extension Company, we provide a simple, straightforward lease enfranchisement service that puts the leaseholder at the heart of our work.
Our nationwide team of specialist lease extension solicitors and surveyors will manage your lease extension from instruction to the final HM Land Registry title, constantly striving to get you the best ROI for your property.
The best part is that all of this comes with one fixed fee – no hidden costs.
To find out more about extending your lease, we invite you to explore the resources available on our website, including the following articles:
- How to Extend Your Lease
- How Long Will My Lease Take
- How Much Will My Lease Cost?
- How much value will extending my lease add to my property?
We also offer a helpful Lease Extension Calculator tool that estimates the costs.
If you’re considering extending your lease, book a free, no-obligation appointment with our specialists and receive a free copy of ‘How To Extend Your Leasehold – The LEC Guide’.
For additional information, reach out to us by filling in our online contact form, emailing [email protected] or calling 0800 098 2770.
