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Everything you need to know about ground rent

Everything you need to know about ground rent
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If you are thinking about buying a leasehold property, you will need to budget for ground rent. But if you are unsure about what ground rent is, don’t worry. This article tells you everything you need to know.

What is ground rent?

Long leaseholders in England and Wales have to pay rent to the freeholder or landlord of the property. This is known as ground rent.

There are two basic types:

  • Fixed Ground Rent, which remains unchanged during the term of the lease.
  • Escalating Ground Rent, which will increase during the term of the lease.

Your lease agreement should give the following details:

  • The term of the lease
  • Type of ground rent
  • The amount you will have to pay
  • If it’s escalating, when it will increase and by how much

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Is ground rent the same as rent?

No, but both are a type of rent.

Ground rent

If you pay ground rent, you own your home as a leaseholder but you don’t own the land. So you are paying to rent the land on which your property sits.

Your lease has the potential to increase in value over time. You could sell the lease to make a profit.

Rent

If you pay rent, you are paying a landlord for the right to stay and live in the property. You do not own the property. You only have the right to live there as long as you pay your rent.

What is a typical ground rent?

It varies depending on the type and location of the property.

For most ex-local authority flats, it is around £20 to £50 per year. With private flats, it is within the range of £150 to £600 per year.

Leaseholders typically pay ground rent every three months, every six months, or once a year.

What happens if I don’t pay?

If you don’t pay, the freeholder can take legal action against you. However, the freeholder can only do this under the following circumstances:

  • No payments have been made in three or more years
  • The total amount you owe, including service and administration charges, totals £350 or more

The courts may give you four weeks to pay the outstanding balance. Once you have paid what you owe, the legal action stops.

How can I get rid of ground rent?

You can do this by becoming the freeholder. If you want to become a freeholder you will need to buy a share of the freehold.

Whether or not you will be able to do this will depend on your particular situation. If you live in a flat, at least half of the other leaseholders will need to buy the freehold of the building.

If you are interested in buying a share of the freehold, it is best to seek legal advice.

Take home

When thinking about buying a leasehold property, it’s a good idea to get as much information as you can about the terms of your lease.

If you are a leaseholder and experiencing financial difficulties, it’s advisable to seek legal advice sooner rather than later.

If you want more information about what ground rent is, check out the gov.uk website and the Money Advice Service website.

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