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Ground Rent and Rent Charge: the differences, pitfalls, and liabilities

Ground rent and rent charge banner

Ground rents and rent charges are fees payable on freeholds and leasehold titles.

The two are often confusing for homeowners due to their similarities in name and amount. 

More about ground rent

Ground rent is a rent paid on ground being leased out. As they are found on leasehold titles and created within lease documentation, they are often a major factor that potential buyers consider before buying a property. 

They can be of varying amounts and are paid to the freehold landlord (or their management agent) every year.

The age of the property, when the lease was created, location of the property, and the length of the lease itself can all cause the ground rent to vary.

Peppercorn ground rent

Some leases have a ground rent of a peppercorn (effectively £0) whilst others can escalate into the hundreds, sometimes thousands of pounds.

These particular types of leases are the root cause of concern when it comes to purchasing leasehold titles. 

Luckily, since June 30, 2022, the Leasehold Reform Act (Ground Rent) 2022 requires that any new lease of a residential property that is granted has to have a ground rent of a peppercorn. 

However the legislation does not yet cover for leases granted before this date and the previously created ground rents are still payable. 

Non payment of your ground rent – no matter the value of the ground rent – risks the forfeiture of your lease for non-payment. The remedy to forfeiture for ground rent is to pay the historic arrears of ground rent that are unpaid, which are limited to six years under the statue of limitations. 

What about freehold titles?

Freehold Titles can also have their own charge – the rent charge – normally on older freehold estates but that can also be applicable to leasehold properties. 

Whilst they can be paid annually like a ground rent they are not created the same way and are also not impacted by the LRA 2022, nor do they have the same benefit of relief from forfeiture. 

These rent charges can be created at any point during the title’s lifespan as opposed to at the creation of the title like a ground rent.

At some time the charge itself will have its own registered title number.  

A rent charge owner can be harder to keep track of If the rent charge is not separately registered and the property is old.

Again, as with a ground rent, the amount payable can vary from property to property.  

What if I don’t pay my rent charge?

Non-payment of your rent charge has two possible liabilities.

The first liability is the same as non- payment of ground rent, and if your rent charge has not been paid the rent charge owner can claim six years back payment for the same. 

However, even if you pay these arrears, the rent charge owner still has the right to grant a 99-year rent charge lease without notifying you of their intention to do the same. 

The registration of such lease makes your freehold title reduce significantly in value as it now becomes a freehold reversionary title and removes your right to occupy the property. 

Indemnity policies can be taken out to try to protect from the creation of such lease, but these do have their limitations and so buyers should always be aware of any rent charges and make sure these are paid to the rent charge owner where possible. 

Need some advice on ground rent?

If you need some assistance regarding a problem with rent charge or ground rent, our Commercial Property Team can help. Call us today on 01772 799 600.

Article by paralegal, Sophie Aspinall

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