What is Ground Rent?

If you’re in the process of buying a house – whether you’re just researching at the moment or you’re making offers on properties – you may have come across the term ground rent.

This is more likely if you’re considering leasehold homes, as it only applies to them.

But if you’re not quite sure what ground rent is, don’t worry. We’ve put this guide together to help you work out if it’s something you’re willing to take on.

What is ground rent?

Ground rent is a charge that is applicable to properties with long leases. You pay ground rent to the freeholder, who owns the ground your home is on.

With a leasehold home, you’re essentially renting the land your property is built on from the freeholder. It’s common in flats, but is becoming increasingly common in new-build houses.

You may be able to buy the freehold to your home, but there are conditions around this. You will usually have to have your ground rent fully paid up and the cost of buying the freehold outright might be too high.

However, housebuilder Persimmon recently announced it would let homeowners buy the freehold to their homes at a discounted price.

Aviva, an insurer that bought freeholds from developers, also said it would remove ground rent terms that would be considered unfair, as well as repay owners whose ground rents doubled.

How much is ground rent?

The cost of your ground rent will depend on the terms of your lease. There is no set amount for ground rent in the UK, meaning that you could pay any amount.

If you’re not sure what the ground rent of a property you’re considering is, don’t hesitate to ask.

You’ll need to know all the details of all costs involved in owning a home to be able to work out if you can afford it in the long term.

Ground rent problems

Ground rent in the UK has been under scrutiny in the past few years. That’s because there is the potential for the charge to increase to unaffordable amounts.

Many ground rents are set to increase in cost after a set period. It may start as a reasonable and affordable cost, but then becomes unmanageable.

For example, a lease may set out that the ground rent starts at £300 per year. But this could double after 10 years, taking it to £600. After 50 years of owning the property, this could cost £9,600 per year.

It’s also becoming highly challenging to sell some leasehold properties with high ground rents. New buyers are reluctant to take on charges they see as unfair.

This is why it’s absolutely essential to read the terms of a lease thoroughly so you know what yours will cost you, both now and in the future.

Difference between ground rent and service charge

Leasehold properties can come with several different charges. Ground rent and service charges are two of the most common.

A service charge is different in that it covers the maintenance of the property and any communal areas. These can include gardens, entrances and lounges.

Included in your service charge will be the cost of buildings insurance. You’ll have to arrange your own separate contents insurance if you want to cover your possessions, though.

You are entitled to ask for a summary of how the service charge is worked out, as well as what it’s being spent on. You are also entitled to see any paperwork relating to that summary, including receipts or invoices.

Don’t forget that you have a legal right to see this information. The landlord is committing a criminal offence if they do not give it to you when requested.

How First4Lawyers can help

The costs of owning a leasehold home can be confusing. But the right conveyancing team can help you make sense of everything.

To find out how First4Lawyers could help you find the right property solicitors to ensure your purchase goes as smoothly as possible, just give us a call or enquire online and we’ll take it from there.