Ground rent is a payment that leaseholders make to the freeholder of their property. It is specified in the lease and is typically paid annually, though some leases require payment every six months or quarterly. Ground rent applies to leasehold properties — if you own your home as freehold, you do not pay it.
Historically, ground rents were set at a low, nominal amount — often called a "peppercorn rent" — of just a few pounds per year. However, some developers of new-build leasehold properties set ground rents at much higher levels, sometimes with clauses that doubled the amount every 10 or 25 years. This practice attracted widespread criticism because escalating ground rent can make a property harder to sell and more expensive to own over time.
The Leasehold Reform (Ground Rent) Act 2022 addressed this by capping ground rent on most new long residential leases granted from 30 June 2022 onwards at a peppercorn (effectively zero). However, existing leases with higher ground rents are not affected by this legislation.
Mortgage lenders scrutinise ground rent clauses carefully. Many will decline to lend on properties where the ground rent exceeds 0.1% of the property value or contains a doubling clause, because escalating charges can affect the property's saleability and value.
Amy owns a leasehold flat with a ground rent of £200 per year. Her lease includes a clause increasing it by £50 every 10 years. Her mortgage lender considers this acceptable because the increases are modest and predictable. Her neighbour's flat, however, has a ground rent that doubles every 15 years — starting at £300 and reaching £2,400 after 45 years. Many lenders refuse to finance that flat due to the escalating charge.
Key Points
- Ground rent is paid by leaseholders to the freeholder, usually annually
- New leases granted from 30 June 2022 are capped at a peppercorn (zero) ground rent
- Existing leases with escalating ground rent clauses are not affected by the 2022 reform
- Mortgage lenders may refuse to lend on properties with high or doubling ground rents
- Always check the ground rent terms in a lease before purchasing a leasehold property