Ground rent is an annual fee paid by the leaseholder of a property to the freeholder. The leaseholder typically owns their property, but the land on which the property sits is owned by the freeholder. The payment is therefore a fee to rent the land on which their property is located. Leasing land in this manner is quite common in the UK, especially where flats are concerned.
Typically, the length of lease on a leasehold property lasts for a long period. Any period that is 40 years or less is deemed to be short. The terms of the lease should be made clear when you are buying a leasehold property. These terms should include information about the ground rent and how much you need to pay each year.
Are there different types of ground rent?
Yes, there are two types:
- Fixed ground rent
- Escalating ground rent
The first type is preferable, since it remains fixed at the same amount each year for the duration of the lease. So, if the lease lasts for 99 years, you’ll know the amount you need to pay each year. There will never be any shocks or increases.
If the lease has escalating ground rent, the terms will tell you how often the amount will rise and by how much. It is always wise to thoroughly check the terms of a lease before purchasing a leasehold property. Remember, leaseholds do not just apply to flats. Some houses have also been built with leasehold status, including escalating ground rent. This can make them harder to sell in future, and more expensive to pay for as the ground rent rises.