Ground rent – what is it ?
Kings Speech November 2023 Ground Rent Update – the speech confirmed that the government would issue a consultation on capping existing ground rents. However no details were provided of any changes that the government were considering currently. The consultation on these caps closes to responses on 21 December 2023.
This follows the earlier legislation – when ground rent on all new leases had previously been effectively banned with effect from June 30, 2022.
Ground rent is a small sum, usually no more than £200 or so, paid annually by a
leaseholder to the freeholder as one of the conditions of their lease. The lease should specify the following with regard to ground rent:
a. Exactly how much the ground rent is.
b. Precisely when it needs to be paid by and to whom.
c. Additionally, if the terms of the lease also include a provision for the periodic increase in the ground rent they must specify what this period is, e.g. every five or ten years and the notice that the freeholder must give to the leaseholder of each increase.
d. The consequences for the leaseholder should they neglect to pay the ground rent.
It is not uncommon for a ground rent to be a nominal amount of few pounds a year, or even nil. This level of ground rent is commonly referred to as a ‘peppercorn rent’.
And don’t confuse ground rent and service charges. They are quite different. Ground rent is payable regardless of maintenance issues – service charges are imposed to maintain the block.
Click here to read about service charge arrears
Looking for Specialist Advice on Ground Rent Arrears? Call our Leasehold Team on FREEPHONE 0800 1404544 for FREE Initial Phone Advice
When should ground rent be paid?
It is important to remember that the payment of ground rent is only compulsory if the freeholder has demanded it formally. This means that you should be notified in the post (to the flat itself and any other specified address). The demand will only be valid if it includes all of the necessary information. Therefore, it must feature
- your name;
- the period of residence the rent relates to;
- the amount due freeholder’s name and address (or the details of the managing agent if that is who payment is owed to);
- the date on which ground rent must be paid.
The notice will be invalid if the freeholder fails to serve it in conjunction with ‘Notes for Leaseholders’ – a document which lists the rights and responsibilities of the freeholder.
You should also bear in mind that you may not have any right to a receipt, so it is advisable to keep your own record of payment. A bank statement or bank transfer receipt will do.
Ground rent arrears – the need for vigilance
Freeholders/landlords are strongly advised to keep a close eye on the state of ground rent arrears outstanding on their properties. The situation can, even briefly neglected, quickly escalate out of control which leads many freeholders to appoint solicitors with expertise in managing the recovery of ground rent arrears specifically to ensure that this doesn’t happen.
Some lawyers, depending on the circumstances, will begin the process by reviewing the existing lease to ensure that the provisions it contains will allow for an effective recovery of the arrears.
How much of the ground rent arrears can be recovered?
It is possible to recover up to six years of outstanding ground rent arrears, but, as the Limitation Act 1980 includes ground rent as a contract debt, no more than six years.
If there are actually more than six years of arrears outstanding it is only the latest six years which will be recoverable by the landlord or freeholder.
Ground rent – essential and careful communication
Strange as it might seem, leaseholders are under no legal obligation to pay the ground rent arrears unless payment has been formally demanded of them in writing. This demand must be made by way of a prescribed form [as specified in Section 166 of The Common and Leasehold Reform Act 2002] and sent to the leaseholder’s home address or any other address the leaseholder has specified, together with a document entitled ‘Notes for Leaseholders (Rights and Responsibilities)’.
Getting any detail of this form wrong will allow the leaseholder to ignore it ; the input of an experienced lawyer can be critical to ensure that this doesn’t happen.
Ground rent arrears recovery
If a leaseholder fails to pay the arrears within the thirty to sixty day period specified in the Section 166 notice the freeholder/landlord can either:
a) attempt recovery of the arrears through the small claims court
b) Take forfeiture action against the leaseholder
The usual course of action will be recovery of the arrears, and in many cases the matter does not proceed to court as the leaseholder will pay the arrears before the date set for the hearing. This avoids the leaseholder becoming liable to pay the legal costs of both parties and halts the legal action in its tracks.
Non-payment of ground rent – the legal consequences for tenants
If you are a tenant and court action is brought against you, you should attempt to pay off the arrears before the court date. If you fail to do so, you are likely to have to pay the freeholder’s legal costs on top of your own and the arrears. The legal proceedings will disappear as soon as the debt is paid (‘relief from forfeiture) and you can continue your leasehold.
If you are unable to settle the payment prior to the court hearing you will normally receive 28 days in which to come up with the funds. Once the court has ordered you to pay, if you fail to settle the debt, the freeholder has the right to use bailiffs to repossess your home. If you find yourself in this position you may find that the court will delay repossession for a limited time must you must inform them swiftly.
Non-payment of ground rent – the possibility of forfeiture
Taking forfeiture action, which again could result in the leaseholder losing his home, is, compared to a small claims court action, much more complicated and needs skilled legal input, if the freeholder is to avoid getting the prescribed procedure wrong and finding themselves committing the criminal offence of illegal eviction.
A forfeiture action can only be undertaken when the leaseholder owes £350.00 or more in ground rent, though this condition will not apply if the arrears have been outstanding for more than three years. As a result, forfeiture actions following arrears of ground rent are rare.
Click here for more about lease forfeiture
Can the amount charged for ground rent increase?
In most cases, the freeholder can only raise the ground rent payable If you sell the property, you consent to a rent increase, or the lease states that the freeholder has the right to increase the rent.
Leases will normally state that a certain number of years must have passed before rent can go up. In such cases, it should be clear from the lease how often the freeholder is allowed to do so and how far in advance they must warn you of the increase.
The need for clear communication
All of the above can be simply avoided by clear communication between leaseholder and freeholder, an adequate and fair lease and preventing, by way of regular monitoring, the level of arrears snowballing to alarming levels.
Ground Rent Arrears Recovery – small sums really do add up
Although individual ground rents may not seem high (it’s estimated at the average ground rent is £319pa), given that there are very roughly 4.5 million leasehold properties nationwide, the total amount of ground rent paid every year is substantial.
In fact, Stripe Homes estimates that total ground rents paid every year in England alone could be as high as £1.439bn.
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Whether you’re a tenant, landlord or freeholder, our team can help you with any issue surrounding ground rent arrears.
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