Leasehold property and the issue of escalating ground rent

When thinking about buying a leasehold property you should prepare for the issue of escalating ground rent.

When you buy a flat or other type of leasehold property you are effectively buying a property for a period of time. This is in contrast to buying a freehold property where both the building and the land it’s built on are yours. The terms by which you can live in a leasehold property are stipulated within the Lease. Once your conveyancer reviews this Lease they will advise you of all the legal issues you should be aware of. One of these will be what the current ground rent is.

Ground rent is the payment to the freeholder which allows you to keep living at the property (it is not a payment for service charges which is a different cost). If the property has an annual ground rent which exceeds £250 outside of London (or £1000 in London), then the Lease may be considered an assured shorthold tenancy (AST) under the Housing Act 1988. This means that if you fail to pay your ground rent, even if only a nominal sum of £500 then your landlord (the freeholder) has the right to enter your property and repossess it under section 8 of the Housing Act 1988, without question. This is an absolute right under legislation and the Courts would have to permit this, leaving you exposed to losing your home for a relatively small debt.

This could also be a problem for your lender if you are obtaining a mortgage to buy the property. Some lenders simply won’t lend if this is the case or they will require a Deed of Variation to be entered into to amend the ground rent clause in your Lease. This can be a lengthy process (if the freeholder agrees to the variation) and can add to the stress of buying a property, cause delays and add further costs.

The Deed of Variation is a document that will amend the Lease and will override the original wording about the ground rent and refer to the new wording in the new deed. If this is not done, the ground rent may continue to increase (escalate) if the landlord does not agree to it being capped. You should note that ground rent can be thousands of pounds each year. As leases are often granted for hundreds of years this can mean regular increases can be the result on top of a mortgage and service charges. This is an extra liability and could trigger the action referred to above under section 8.

If you are a cash buyer you may be able to proceed with a Deed of Variation and you may choose to accept that risk, however should you wish to sell the property in the future, you are going to limit your market to similar cash buyers and exclude those who need a mortgage; you are effectively kicking the can down the road.

The Leasehold Reform (Ground Rent) Act 2022 was introduced by the government to prevent any new leases having a ground rent higher than a peppercorn (nothing to pay). However if you are buying a leasehold property with a Lease older than this (of which there are still many) then this could be an issue that impacts your purchase whether through increased stress and uncertainty, delays or cost.

We have the experts who can help you navigate through the purchase of any property, however it is worth noting the issues surrounding ground rents explained above as it may save you time in the long run.


Genevieve Carnell