In England and Wales, there are two main forms of interest in a property – freehold or leasehold. When property or land is freehold it is owned outright, and there is no time limit on the period of ownership. Leasehold, however, is the temporary ownership of property under a lease. A lease can run for any amount of time, but once the lease expires ownership of the property reverts to the freeholder.
In the case of long leases, which can run for hundreds of years, possession of the property is often subject to payment (on demand) of “ground rent” to the freeholder (or superior landlord) for the use of the land the property sits on.
Ground rent is either fixed or escalating. If fixed, the rent will remain unchanged throughout the course of the lease, while an escalating ground rent will increase according to the terms specified in the lease. For instance, a lease for 99 years may initially have the ground rent set at £300.00 a year, with a clause that the rent will double every 10 years. After 10 years, the ground rent will be £600.00, after 20 years; £1,200.00 and so on – increasing exponentially until the end of the lease term.
If a long lease is transferred to a new tenant that new tenant, as a successor in title, will still be liable to pay the amount of ground rent as calculated in accordance with the escalator clause.
Ground rent is usually requested by a written demand, stating:
- The name of the tenant (the holder of the leasehold interest);
- What period the demand covers;
- The rent due;
- Who the rent should be paid to;
- The date payment is due by, or was due by.
Once demand has been received, payment must be made and a tenant in arrears may be taken to Court by the landlord to recover debt. Tenants should be aware that failure to pay ground rent is a breach of covenant and can entitle the landlord to forfeit the lease and recover possession of the property. It is therefore essential that all property owners know whether they own a freehold or leasehold interest and whether that leasehold interest attracts a ground rent.
Ground Rent – In Conclusion
While ground rent is a common aspect of a lease and not immediately something to be concerned about, recent publicity has highlighted the risks of escalating ground rent clauses. It is therefore vital that, if you are entering into a new long lease or purchasing an existing one, you ensure that any ground rent is fixed or that you will be able to pay the rent decades down the line if the rent is escalating. It should also be worth remembering that escalating rents may have an impact on the value of a property, so a surveyor should be consulted before a leasehold property is purchased.
To discuss the implications of ground rent or your lease in general, please contact BHW’s commercial property department on 0116 289 7000.