What Is Ground Rent?
An annual charge payable by a leaseholder to the freeholder, separate from service charges, for the land on which the building stands.
Definition
Ground rent is a charge paid annually by a leaseholder to the freeholder (the landowner), effectively the cost of using the land beneath a leasehold property. Until recent legislation, ground rents could be high (£200-£500/year) and structured to double every 10-25 years, making properties difficult to mortgage and sell. The Leasehold Reform (Ground Rent) Act 2022 banned ground rents above a 'peppercorn' (effectively zero) on new residential leases in England and Wales. If you buy a property with an existing pre-2022 lease, you may still face ground rent. Mortgageable ground rents generally must not exceed 0.1% of the property value per year. Always check the lease before buying any leasehold property.
Example
An older lease charges £300/year ground rent doubling every 20 years. By year 40 this would be £1,200 per year. Many lenders refused to mortgage such properties; legislation now protects buyers on new leases.