What Is Ground Rent?

Ground rent is a payment made by the leaseholder to the freeholder under the terms of the lease. It is separate from service charges and is a condition of holding the lease. The amount and any escalation provisions are set out in the lease itself. Ground rent can range from a nominal "peppercorn" (effectively zero) to several hundred pounds per year, depending on the lease.

The Leasehold Reform (Ground Rent) Act 2022

The Leasehold Reform (Ground Rent) Act 2022 banned ground rents on new residential leases granted after 30 June 2022 (with some exceptions). New leases must now be granted at a "peppercorn" ground rent — effectively zero. However, this legislation does not apply retrospectively to existing leases. If your lease was granted before this date, the ground rent provisions in your lease remain in force.

Escalating Ground Rent Clauses

Some leases — particularly those granted between approximately 2000 and 2015 — contain escalating ground rent clauses that cause the ground rent to increase at set intervals. The most problematic are "doubling" clauses, where the ground rent doubles every ten or twenty-five years. A ground rent that doubles every ten years can reach very high levels over the term of a long lease, and many mortgage lenders will not lend on properties with such clauses.

• Check your lease for any ground rent escalation provisions
• Doubling ground rent clauses (every 10 or 25 years) are the most problematic
• Many mortgage lenders will not lend on properties with doubling ground rent clauses
• The RICS ground rent guidance sets out thresholds that affect mortgage availability
• If your ground rent doubles more than once during the mortgage term, lenders may decline

What You Must Disclose

You are required to disclose the ground rent provisions in your lease to buyers. This will be covered in the property information forms completed as part of the conveyancing process. Your solicitor will also provide a copy of the lease to the buyer's solicitor, who will review the ground rent clause. Do not attempt to conceal or minimise problematic ground rent provisions — this could give rise to a claim after completion.

• The current annual ground rent amount
• Any escalation provisions — how and when the ground rent increases
• Whether the ground rent has been reviewed recently and the current amount
• Any demands for ground rent that have not been paid

What If Your Ground Rent Clause Is Problematic?

If your lease contains a doubling ground rent clause or another escalation provision that is likely to affect mortgage availability, there are options. You may be able to negotiate a deed of variation with the freeholder to amend the ground rent clause. Alternatively, pursuing a lease extension under the Leasehold Reform Act will result in the ground rent being reduced to a peppercorn. Both options involve cost and time, but may be necessary to achieve a sale at full market value.

• Negotiate a deed of variation with the freeholder to amend the ground rent clause
• Pursue a statutory lease extension — this reduces ground rent to peppercorn
• Discuss options with your solicitor before marketing begins
• Be transparent with buyers about the ground rent provisions — surprises during conveyancing cause fall-throughs

What to Do Next

Locate your lease and review the ground rent provisions. Note the current annual amount and any escalation clause. If you have a doubling ground rent clause, discuss the implications with your solicitor before marketing begins. Being prepared to address this issue proactively will save significant time and stress during the sale.