What is Peppercorn Ground Rent?
Estimated reading time 5 minutes
Before we answer the question “What is Peppercorn Ground Rent” let’s explain what a Ground Rent is. If you own a property, and you have to pay a fee to the person who owns the land that your property is on this fee is called “Ground Rent”. It’s a bit like renting a house, but instead of paying rent to a landlord, you’re paying rent to the person who owns the land.
Next up Peppercorn Ground Rent
Peppercorn ground rent is a very small amount of rent, usually somewhere between £1 -£10 per year, that you (the leaseholder) might have to pay to the person (the freeholder) who owns the land that your property is on. The term peppercorn is said to come from 16th/17th early century leases where the rent was, in fact, a single peppercorn a year.
Can Peppercorn Ground Rent be raised?
Peppercorn ground rent is usually a fixed amount, which means that it cannot be raised during the term of the lease. However, it’s important to note that the lease agreement may contain clauses that allow the freeholder to increase the ground rent in certain circumstances, such as when the lease is renewed or when certain improvements are made to the property. It’s important to carefully read and understand the terms of the lease agreement to know whether and when ground rent can be increased.
Can Peppercorn Ground Rent be removed?
Leaseholders may have the right to buy the freehold of their property through a process known as enfranchisement. This can be done through collective enfranchisement, where a group of leaseholders join together to buy the freehold, or individual enfranchisement, where a single leaseholder buys the freehold.
Gaffsy says. …It is important to note that enfranchisement can be a complex and expensive process, and it is advisable to seek professional advice before embarking on the process. However, enfranchisement can provide leaseholders with greater security and control over their property, as well as potentially reducing ongoing costs associated with ground rent and other charges.
Why you need Ground rent
Under English law, it is a requirement for every legal contract to involve an exchange of value between the parties involved. While the items exchanged do not necessarily have to be of equal value, an exchange must take place. This means that even if a landlord or freeholder intends to lease their property at no cost, they are still required to enter into a contract with the leaseholder for a nominal sum; a nominal sum ground rent is as we have explained known as a Peppercorn Ground Rent.
Gaffsy says .. Even though it’s a small amount, it’s important to remember that you still have to pay it, and not paying it can lead to legal trouble.
Is Peppercorn Ground rent the only Ground Rent?
Peppercorn Ground rent is not the only type of ground rent. Ground rent can vary widely depending on the terms of the leasehold agreement. Some of these terms have been problematic in the past and caused angst and anxiety to the leaseholder and is why the UK Government introduced the Leasehold Reform Act. This act is aimed at addressing some of the concerns related to onerous ground rent clauses and making the system fairer and more transparent for leaseholders.
What are the ground rent reforms?
So as previously mentioned in order to tackle onerous ground rents and protect leaseholders from unfair practices the UK government introduced The Leasehold Reform (Ground Rent) Act 2022 which came into effect on 30 June 2022.
These reforms include:
- Ban on New Leasehold Houses: Which means that all new-build houses must be sold as freehold properties.
- Reducing Ground Rent to a Peppercorn: This applies to all new long leases, including leasehold houses and flats. The Act also bans landlords from charging administration fees for collecting a peppercorn rent. If a landlord charges ground rent in contravention of the Act, they are liable to receive a financial penalty between £500 to £30,000.
- Crackdown on Unfair Practices: The government has also announced plans to crack down on unfair practices in the leasehold market, including banning the sale of leasehold houses through Help to Buy, and making it easier for leaseholders to take legal action against developers and freeholders.
Gaffsy says .. Note that these reforms only apply to new lease agreements set from 30 June 2022. Retirement properties new leases do not come into scope until 1 April 2023 and those with outstanding leases are not covered in this first reform phase.
When can we expect phase 2 of The Leasehold Reform Act?
The next Kings speech in Autumn 2023 is when further details of a leasehold bill is set to announced and the Government has said that they are committed to delivering the second phase of the two-part leasehold reform within this Parliament (by 2024).
How can Gaffsy Help?
Are you a leaseholder looking to sell your property before you need to renew your lease? Or perhaps you are a landlord looking to sell your property before further reforms are introduced?
We here at Gaffsy can help, we make selling property quick and simple, we offer a convenient and guaranteed property sale regardless of the property’s condition and history.
We are genuine cash buyers, we do not act as agents or traders, but instead guarantee to purchase your property at our quoted price and not a penny less, with zero fees or add-ons. Whether you need to move quickly or stay where you are for a while to get your affairs in order, we will structure the timing of every sale around you. We also offer a sell flat fast service for landlords or homeowners who want cash for their property.