Written by: Keoghs Solicitors
Date: 20th October 2023
What is ground rent?
Ground rent is a sum payable by a leaseholder to the landlord, usually on an annual or half-yearly basis. The sum can be fixed, for example £50 per year, or it can be an amount which can be increased in specific intervals. Ground rent can only be increased if there are express provisions allowing for an increase by way of rent reviews.
How can increasing ground rents become an issue?
If the ground rent is more than £250 per annum (or more than £1000 per annum in London) and you are occupying the property as your sole and main home, the lease may be considered as a assured tenancy under the Housing Act 1988. The issue is that if the ground rent is in arrears of 3 months, the landlord has a right to apply to court to end the lease and repossess the property under Ground 8 of the Act. Ground 8 is a mandatory ground for possession which means the court cannot refuse.
Properties with these types of ground rents can be difficult to sell or remortgage as lenders are hesitant to lend due to the potential risk of losing their security against the property.
Changes made by the Government
The Government introduced the Leasehold Reform (Ground Rent) Act 2022 (the 2022 Act) which applies to new leases granted from 30th June 2022 and looks to solve the ground rent issue moving forward. The Act prevents the ground rent for any newly created lease being higher than a ‘peppercorn rent’ (i.e nil rent) per year.
However, the 2022 Act only applies to new leases granted from 30th June 2022. If the lease was granted before this date, a leaseholder may wish to consider the following options:
The available options:
Deed of Variation
This is a formal agreement made between the leaseholder and the landlord to makes changes to the terms of the lease and is the most preferred option.
The landlord can agree to vary the terms of the lease to limit ground rent to £250 per annum or under or £1,000 or under per annum if the property is in London.
The landlord may request a premium for agreeing to vary the terms of the lease and the leaseholder should also consider the landlord’s legal fees as well as their own.
Another option is to obtain an indemnity insurance policy which covers the ground rent defect. Many lenders will provide security for a leasehold property subject to an indemnity policy which covers any losses they suffer. However, this policy will only usually cover the lender’s interest. It will not reduce the ground rent and will not provide any remedies to the leaseholder if the landlord serves notice to repossess the property due to the rent arrears.
For further help or guidance on this article, please contact our Property Team on 0161 456 8125(Hazel Grove, Stockport)/ 0161 928 9321 (Altrincham).