Ground Rent Guide: advice for freeholders and leaseholders
Ground rent is a fee levied - usually annually - by the freeholder on the leaseholder as a condition of the lease.
Ground rent may increase, for example it may double every 25 years. Or the charge may be a peppercorn rent (low or nominal fee) or indeed nil if the leaseholders in the block have acquired their freehold and extended their leases. Conditions within an individual lease may dictate further terms upon the amount due.
Ground rents may differ between flats within the same block. The amount can depend on the size of the flat or how many years are left on the lease.
Background to ground rent
Whilst the concept of a ground rent has been around since Roman times, the collection of this charge is governed by two pieces of recent legislation; the Commonhold and Leasehold Reform Act 2002 and The Landlord and Tenant (Notice of Rent) (England) Regulations 2004.
For instance, since the 28th February 2005 any demand for ground rent by a freeholder, or their managing agents, must be made in a "prescribed form" as set out in the 2002 Act. Demand for payment must take the form of a formal, written letter. The letter must establish the date for payment (between 30 and 60 days) and the leaseholder has the right to challenge it.
Demand for payment
Landlords have the right to ask for up to six years worth of unpaid ground rent. There is the possibility of forfeiture of the lease should the owed amount over £350, owed over a three-year period.
However, if a freeholder, or their agents, attempt to add legal or administration charges for non-payment, based on an incorrect demand notice, such charges will not be payable. If necessary the leaseholder should seek a determination from the First-tier Tribunal (Property Chamber) in England.
As a freeholder, you can sell your ground rent to a number of institutional buyers, usually large investment funds.
Our approach
Whilst a number of freeholders may fail to bill their leaseholders or charge a 'peppercorn' amount for ground rent, not paying ground rent can lead to legal action. It is still a financial agreement that needs to be honoured. It's important to understand and follow whatever provisions there may be in the lease.
Block Management UK Ltd try to be as transparent as possible in the collection of ground rent. And we account for it separately from service charges.
Recently ground rent has become a hot topic due to the reporting of new leasehold house sales leaving home owners worried about rising ground rent charges. Despite this, the fact is that ground rent continues to exist as a common form of charge experienced by leaseholders. And it is likely to remain that way for some time. With that said, its collection should go smoothly and without incident.
To help achieve this, we offer three recommendations for leaseholders and freeholders:
Understand the lease
Whether as a standalone service or as part of our complete management service, we take time to understand the lease provisions and we advise all parties that this is a key to managing ground rent collection without issues.
Establish a clear payment schedule
It's easy for individuals to miss deadlines on a fee that is relatively infrequent and sometimes very nominal. That's why we have robust systems so that no one forgets!
Work together to solve issues
Keep open in communication and work together to solve issues. Whether its collecting a number of years' worth of charges, or extending the leases, BMUK tries to help our clients get to a satisfactory conclusion.
To receive a free online quote on our management fees for your residential block or estate, complete our Quotation Form now.
For a general query about our range of services, visit our contact page for your nearest office.
NB this article does not constitute legal advice.
(15 November 2018 )
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