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Ground rent: understanding your rights

19.03.2018 Site Manager

Ground rent and leasehold disputes have really come to the fore in the past few years, with big developers being accused of notching up ground rent fees to impossible heights for homeowners. The recent ground rent scandal exploded after a number of developers began inserting clauses into leasehold contracts which allowed them to double ground rents every ten years.  As of July 2017, the number of UK homeowners affected by the scandal was estimated to be around 100,000, with numbers soaring when those in leasehold flats are included. With transparency and professionalism at the top of our agenda, we want to make sure our clients don’t get caught in the fray by ensuring you know your rights.

Understanding ground rent

With many disputes arising when buyers don’t know what risks are involved, it’s important to understand exactly what ground rent is and how your leasehold works.

The first thing to understand is that ground rent is not the same as a service charge. Where service charge is the fee that contributes to the running and upkeep of the building, ground rent is essentially profit for the freeholder.

Whilst they legally own the property, it can be useful to think of leaseholders as long-term tenants. This is because the leaseholder owns the property itself, whereas ownership of the ground it sits on remains with the freeholder.

Making sense of your lease agreement

It is the responsibility of your conveyancing solicitor to advise you on the lease agreement, including ground rent provisions. The solicitor you use is down to you and there is no obligation to use the solicitor recommended by the developer or freeholder. 

Where ground rent provisions are made in your lease, these should be clearly set out within the agreement. The lease should say when ground rent should be paid, when it can be demanded by the freeholder (which cannot be before the due date stated in the lease) and the set price. If the ground is subject to increase, this will also be laid out, stating when and how much the ground rent will increase by.

Be aware, you don’t actually have to pay ground rent until your landlord (the freeholder) has sent a formal written demand for it and within that demand they can claim up to six years in arrears in one go. However, the set amount of ground rent you pay per year can only be increased if there is a clause stating this in your lease when you purchase the property.

Buying your freehold

After you have owned the leasehold for two years or more, you are legally entitled to buy your freehold. Of course, this means you will not have to continue to pay a ground rent fee, but, buying the freehold can be extremely expensive. If you’re thinking of buying your freehold, you may want to read our five-step guide to the process.

If you’re confused about where you stand when it comes to your leasehold and ground rent payments, the Austin Gray team are always happy to help. Get in touch with our experts today for an impartial and transparent discussion on exactly where you stand.