What Is Ground Rent?
Answer: Ground rent is a payment made by a leaseholder to the owner of the land on which their property is built.
In the United Kingdom, ground rent is often used as a way to generate income for the landowner, as it gives them a regular stream of payments that lasts for the duration of the lease. Ground rents can be charged at either a fixed rate or a variable rate, and they may also be subject to increase in line with inflation.
Leaseholders are usually required to pay ground rent whether or not they reside in the property. However, there are some cases where ground rent can be waived – for instance, if the leaseholder is over 65 years old or lives in a property that has been adapted for their needs.
How Does The Payment Of Ground Rent Work?
Ground rent is normally payable at a fixed rate every year and the owner of the land should inform the leaseholder how much this will be before they sign their initial lease. While some leases allow for ground rent to increase, others may state that it should remain constant throughout the life of the lease.
If rent is paid at a variable rate, it’s usually calculated using the Retail Prices Index (RPI) plus an interest charge on the difference between the ground rent due and what has actually been paid. For example, if the RPI currently stands at 3 per cent, then a variable rate of 4 per cent would mean that the leaseholder would owe 1 percent of the initial ground rent every year.
Some leases state that the landowner can increase the ground rent at any time to keep pace with inflation, but this is something that needs to be proven in writing. Failure to do so will mean that ground rents cannot be increased without proper consent from the leaseholder.