Ground Rent Vs Service Charge
What is Ground Rent and how does it differ from the Service Charge?
Quite a few new flat owners have asked us what is Ground Rent and why do they need to pay it? We thought it would be a good idea to produce a little guide to what it is, why it is separate from your Service Charge & why in some cases does it not need to be paid.
What is Ground Rent?
Ground Rent is a nominal charge which is set in your lease which goes to your landlord/freeholder as part of their role as the landlord/freeholder. It is not spent on anything to do with your block or estate, it was originally designed to compensate them for their time and effort on the management of your estate, regardless of whether there is a managing agent appointed or not.
How Much Is My Ground Rent?
Ground Rent amounts can vary, from £10 a year through to several hundred pounds. There is also usually a sliding scale of payments, so that the longer the lease goes on, the Ground Rent gets higher and higher.
What Is A Peppercorn Ground Rent?
A Peppercorn Ground Rent is usually where there has been an amount to pay previously but upon extending your lease, the requirement to pay this rent is reduced down to a nominal figure, historically a Peppercon. You do not need to physically pay a Peppercorn, it is just to maintain the validity of the lease under contract law.
Why Is My Ground Rent Amount Fixed But My Service Charge Amount Isn’t?
Unlike your service charge which could vary by amount or percentage portion, the Ground Rent is a fixed amount written into your lease
In Some Circumstances Why Does Another Company Invoice The Ground Rent and You Invoice The Service Charge?
In a lot of cases where there is no management company, your freehold is owned by an investor and they collect the Ground Rent (and often buildings insurance too) and leave us to manage and invoice the service charge for the maintenance of the building.
Does My Ground Rent Impact On The Cost Of Lease Extensions & Share Of Freehold Purchase?
The bottom line is, yes! By extending your lease under the 1993 Leasehold Reform Act or other premium where there will no longer be Ground Rent to pay, your freeholder or landlord will lose income. In order to compensate your landlord/freeholder for that loss of future income, a valuation is made on the loss by a RICS registered valuer according to the current guidance on calculations (which can be varied by case law). Once that fee is paid and your commitment to pay Ground Rent is reduced to a Peppercorn, you will no longer be liable to pay that rent.
Does Reducing Or Eliminating My Ground Rent Make My Leasehold More Valuable To Buy?
It can do, but bear in mind you may have paid a premium to eliminate the Ground Rent so this needs to be factored into your sale price. There are also tax considerations following any premium paid for an extension which can sometimes be offset on any capital gains, but you are strongly recommended to speak to a tax expert who can discuss your particular circumstances.
This should give you a bit of a background to what Ground Rent is but if you need advice or want to discuss issues with Ground Rent at your property or would like us to collect it for you, Contact Us!