What is‘ground rent’ ?
The terms of a lease usually include a requirement for a nominal fee to be paid by the leaseholder to the freeholder. This fee is generally a fairly small amount of money (often under £200) and is known as the ‘ground rent’.
It it is important that leaseholders understand how much this can increase by and the penalties for failing to pay it.
What does the lease say?
The lease should include details of ground rent – including
- the exact amount payable;
- who should pay it
- who it must be paid to (either the freeholder or a managing agent in most cases)
- when payment is required (it is usually an annual charge),
- whether ground rent can be increased
- how much notice the freeholder must give the leaseholder to increase the fee;
- the penalties for failing to pay ground rent.
Sometimes, ground rent will only be a few pounds payable every year and such a minimal payment is usually referred to as a ‘peppercorn rent’.
Ground rent should not be confused with service charges [click here for information about service charge disputes].
Recovering ground rent arrears
You can recover up to 6 years of overdue rent arrears but you cannot recover any more of this due to the Limitation Act 1980. This act views ground rent as contract debt and so if more than 6 years rent arrears are due, you will only be able to recover the last 6 years of overdue arrears.
Section 166 of The Common and Leasehold Reform Act 2002 dictates that freeholder must formally request the payment of rent in writing and state how quickly rent must be paid (30-60 days). If rent is not paid within this time, the freeholder can apply for small claims court to order payment of the outstanding arrears or can take forfeiture action. Leaseholders will often pay the arrears before the hearing can be held meaning that court action is avoided.
Ground rent – leaseholder rights and responsibilities
If a leaseholder has not been served with a Section 166 notice, they are technically under no obligation to pay ground rent. The letter formally demanding ground rent payment should be sent to the leaseholder’s home with another document: ‘Notes for Leaseholders (Rights and Responsibilities). It is crucial that freeholders get a specialist solicitor to draft this form.
Legal penalties for failing to pay ground rent
If the leaseholder is taken to court and the court orders that the rent must be paid by a particular deadline and it is still not paid, the court has the power to evict them, using a process known as forfeiture.
However, such action is only granted in very extreme circumstances and requires the freeholder to prove that more than £350 is owed in ground rent (alone or along with admin and service costs) and if you have owed payment for 36 months or more. Starting such proceedings requires a unique legal process.
Click here for more about forfeiture of leases.
The very real dangers of getting forfeiture wrong
Forfeiture action is complicated and freeholders looking to at forfeiture of a lease will definitely require the help of a specialist solicitor.
If this process is not followed correctly, the freeholder could themselves be criminally convicted of wrongful eviction. A freeholder can only commence forfeiture action if £350 or more is due or if the rent is outstanding for more than 3 years.
What do I do if I’m taken to court?
Should the leaseholder not pay up before the court hearing date and the court then orders them to pay within a set timescale and they fail to make that payment, the freeholder becomes empowered to, should they wish, instruct bailiffs to evict them.
Freeholders – the need to monitor your ground rent
It is vital that freeholders closely monitor the ground rent arrears due on their properties. It is easy for to lose control of the rent owed and for the situation to spiral out of control and as a result, many freeholders turn to specialist solicitors with experience recovering rent arrears. The first thing these solicitors will usually do will be to look over the current lease and ensure that it contains the necessary provisions for recovery of arrears of ground rent.
The importance of good communication
Complicated legal action can be avoided in the vast majority of cases if the lease is properly drafted, the freeholder monitors outstanding arrears and most importantly, if leaseholder and freeholder communicate well.
Need specialist advice on Ground Rent Arrears?
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