Most homeowners assume that as they’ve purchased the property they live in, they are not obliged to pay any form of rent for occupying it. Considering that rent is usually due to a landlord in case you are leasing a property rather than owning it, this assumption seems pretty natural. The only thing that you’re prepared to worry about is repaying your mortgage and making payments on time.
However, some homeowners may also be required to pay ground rent. In this article, we’ll look into ground rent meaning in more detail, we’ll answer the question of what does ground rent cover, and share with you everything you need to know on the topic. The information we’ll provide will help you be better prepared as a homeowner and will ensure you stay on the right side of the law.
What is ground rent?
Ground rent, in simple terms, is a fee that must be paid to the freehold or landlord of the property in case you own a property in England and Wales that is considered a long lease. To understand this concept, it’s essential to understand what a long lease or leasehold interest is.
A leasehold interest gives the homeowner a temporary right to occupy the property or land. On the other hand, the individual who has ownership of the freehold interest of the property has the right to lease it to another person. The relationship established between the two parties, in this case, is very similar to that of a landlord and tenant. The lease is found in the form of a thorough document that is created considering property and contractual law. Its purpose is to define the obligations of the two parties involved. You may be surprised to learn that the majority of flats in England and Wales are held under this principle.
How much is ground rent?
There are a lot of questions people have when it comes to ground rent. How is ground rent calculated? What’s included in ground rent or what does ground rent cover? Although ground rent may sound like something very serious, it’s usually not an amount that should worry you. In fact, in most situations, ground rent is around £50 which must be paid annually. There are different options to make your payment and you can divide it into two instalments paid every six months or pay the full yearly amount.
The amount that you need to pay for your ground rent should be outlined in detail in the lease. The lease will also provide details on when the payments need to be made and how.
Who pays ground rent?
Now that you know what ground rent is, you may be wondering who pays it and who do you pay your ground rent to. Ground rent is paid by a leasehold property wonder and it’s paid to the freeholder or a superior leaseholder. Instructions about this are provided in the lease.
You are only obliged to pay ground rent if the freeholder has officially requested that you do so. You should receive the required ground rent as a notification over post unleash you’ve negotiated a different type of communication. There are cases where the ground rent amount is so low that landlords neglect to officially demand it.
There is certain information that the official demand for ground rent must include to be legitimate. When the landlord requires you to pay ground rent, the demand must be written and must include:
- The lessee’s name
- The period that the demand covers
- The amount due
- The name and address of the freeholder (in addition to that of the managing agent, in case there is one involved)
- The date on which ground rent is due (or if the demand is sent after the due date that’s specified in your lease, the date on which you should have paid it).
So what happens if ground rent is not collected?
In case you don’t pay ground rent that has been officially requested by the landlord, you risk being taken to Court where you will be forced to pay your debts. There are even situations where the landlord could start forfeiture proceedings or the attempt for property repossession recovery. This could only take place if you owe more than £350 in ground rent and the amount has been overdue for three years or more.
Can a landlord increase ground rent?
The truth about ground rent is that it can be both fixed and escalating. In the case of a fixed ground rate, the amount due can not change during the term of the lease. However, Escalating Ground Rent can rise before the lease period expires. Details about the rights to increase the ground rent should be included in the lease, specifying how much the rise can be and in what time periods.
For example, if the lease is for the course of 99 years with a ground rent of £50 annually for the first 33 years, the ground rent can rise to £100 annually for the next 33 years and jump more for the last 33 years of the lease. The amount due will depend on the type of property and type of lease. For example, new, modern, and luxurious properties could have an annual ground rent of £500, which is dramatically higher than the £500 example we provided. At the same time, there are properties with a ground rent of £10 per year.
So if you’re asking yourself the question “Is it normal for ground rent to double every 25 years?”, the answer is yes, it is possible.
Do your research in advance
When deciding to invest in a certain property you’ve grown fond of or shown an interest in, it’s best to be as informed as possible. Try to find as much information as you can on whether there is ground rent on the property and how much it is. This will help you make a realistic overview of the expenses you’ll need to make to own and live in the property.
