What is peppercorn ground rent and how does it work?

Buying a home is a huge milestone, and there’s much to consider beyond finding the perfect property. 

For example, buying either a freehold or a leasehold property will impact whether or not you pay additional charges such as service charges and peppercorn ground rent. 

We’ll reveal what peppercorn ground rent is, how it works, and whether you should change your current ground rent agreement.  

What is ground rent? 

If you buy a leasehold property such as a flat, you’ll own the property but not the land.

So, you’ll have to pay ground rent to the freeholder to own the land your property is on. Ground rent usually covers ownership for a set period of time. 

If ground rent is in the lease, you must pay it. This will be a regular, recurring payment.

This payment does not cover any services the freeholder may also offer, as service charges cover these.  

Alternatively, if you buy a freehold property, you’ll own the property and the land, so you don’t have to pay any ground rent.  

Has ground rent been abolished? 

Ground rent was abolished for new leases on properties bought in England and Wales after 30 June 2022.  

So, if you purchase a home with a new lease, you won’t be charged ground rent, and if you have an informal lease agreement, your ground rent cannot be increased. 

While ground rent usually amounts to a few hundred pounds a year, the amount can double over many years if it’s escalating rather than fixed. However, this ban doesn’t apply to current leases.  

In November 2023, a consultation was launched to look into options for further ground rent reform. 

This could include:  

• Capping ground rent at peppercorn rates for existing leaseholders
• Putting a maximum financial value that ground rents cannot exceed
• Capping ground rent at a percentage of the property value
• Limiting ground rent in existing leases to the original amount when the lease was granted
• Freezing ground rents at current levels 

There’s also the Leasehold and Freehold Reform Bill 2023-2024, which is currently in progress. 

This new bill aims to introduce new measures, including making it cheaper for leaseholders to buy or extend their freehold and increasing the standard lease extension term from 90 years to 990 years. 

What is peppercorn ground rent, and how does it work? 

Peppercorn ground rent is an ‘annual rent of one peppercorn’ or ground rent that is very low. 

Following the Leasehold Reform Act of 2022, ground rents on new leases, unless they’re an excepted or non-regulated lease, will be a peppercorn rent.  

Peppercorn ground rent is typically £1 annually. You should always pay it to avoid losing your lease or getting evicted.  

This amount is very small but serves a vital purpose – as a ‘consideration’ so that the contract between a freeholder and the leaseholder is legally binding.  

It also helps avoid the issues caused by escalating ground rents that can make owning a property unaffordable for leaseholders or would struggle to sell it or extend their leasehold.  

Can my freeholder increase my peppercorn ground rent? 

The amount of peppercorn ground rent shouldn’t change and should be a fixed amount, usually £1 a year.  

Can you change ground rent to peppercorn ground rent? 

Yes, you can change your ground rent to peppercorn ground rent. 

A leaseholder can only change their ground rent to peppercorn ground rent if they want to extend their lease by 90 years or change it.

The leaseholder must also have lived in their property for at least two years.  

However, extending your lease can be an expensive option, as lease extensions can cost thousands of pounds.  

Alternatively, collective enfranchisement is an option. 

This is when leaseholders within a property can purchase the freehold and amend the ground rent to a peppercorn ground rent under the Commonhold and Leasehold Reform Act 2002, as well as extend their lease to 999 years.  

You should always seek legal advice from a property specialist before entering or changing a leasehold agreement.  

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