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Ground rent is simply what it says on the tin: a sum paid to freeholders for the land on which a building stands. Payments have to be collected from leaseholders as prescribed by legislation (which can be read here). It is however far more complex as it is a key component in freehold valuations when leaseholders buy the freehold or a lease extension. It is comprised of a multiple of the current ground rent which in turn depends on how many years are left unexpired on the lease. Future increases in the level of ground rent due will either be fixed or geared through the rent review clauses and it will be pinned to market interest rates and the probability of default by the leaseholder as the ground rent owner will have precedence over all other creditors, including mortgage lenders and HMRC.

The most prevalent method of increasing the ground rent used by house builders when they draw up the leases is that of fixed uplifts with increments varying greatly in range. Another is a regular rise according to the corresponding Retail Price Index which allows the rent to track inflation, the House Price Index, or as a percentage of the capital value of the property.

 

 

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