Peppercorn ground rent is defined by the Cambridge Dictionary as a very small amount of money that you pay as rent. But what does it mean in the context of the UK property market?
Peppercorn ground rent is defined by the Cambridge Dictionary as a very small amount of money that you pay as rent. But what does it mean in the context of the UK property market? Peppercorn rents have been around for hundreds of years, but the introduction of the 2022 Leasehold Reform Act has ignited interest in the topic.
In this article, we’re going to cover everything that you need to know about peppercorn ground rent. Why is it called peppercorn rent? How much is peppercorn ground rent? How does the leasehold reform act affect ground rent? We’ll answer all of these questions and more.
If you’re here to get more information on a specific question, such as can you change ground rent to peppercorn? Use the menu below to skip through the article to your point of interest. Otherwise, read on for everything you need to know about peppercorn rent!
The existence of ground rent depends on whether or not the property is leasehold or freehold. The difference here is key. A freeholder who owns the freehold title to the property owns the land that the property is built on, as well as the property itself, in perpetuity. A leaseholder tends to just own the property and not the land, and only for a set period (the lease length). A leaseholder essentially rents the land from the freeholder.
Ground rent is a fee charged to the leaseholder by the freeholder of the land. The origin of ground rent dates back as far as William the Conqueror who granted large swathes of the country to Lords. They were then able to charge their subjects a lease. The structure of leases has changed over the centuries, but the principle remains the same.
So what does ground rent do? In short, it allows the leaseholder to occupy the land that a leasehold property is built upon. It is only payable if it’s detailed in the lease, and just like other forms of rent, it’s due in regular payments. Failure to pay gives the freeholder the right to pursue legal action. If ground rent is unpaid for a long period and has not been requested by the freeholder, the freeholder may request unpaid rent as far back as six years. This can be either in one lump sum or in several smaller instalments.
Ground rent can be fixed or escalating. Over the past 10 to 20 years higher ground rents have been introduced, sometimes with escalating clauses, which can cause ground rents to reach unsustainable levels. This has serious implications for the leaseholder. If the ground rent exceeds £250, or £1,000 in London, the lease can be classed as an Assured Shorthold Tenancy (AST) under the 1988 Housing Act. This has two negative implications for leaseholders. First, the property is not likely to be classed as mortgageable by the majority of lenders. Second, the freeholder can file for Ground 8 possession if the rent falls into arrears for three months.
In response to these punitive ground rents, the government introduced reform in February 2022 with the Leasehold Reform Act. But more on that later. Let’s have a look at peppercorn ground rent.
Peppercorn ground rent is ground rent that is extremely low. Usually between £1 and £10 per annum. The term peppercorn has interesting origins. In years gone by it actually meant that the rent would be set at a single peppercorn! Other leases have contained even more interesting means of payment, such as a bouquet of poses or a single red rose.
Why does it make sense to have such a token amount as ground rent? In reality, freeholders rarely collect peppercorn ground rent. It’s so low that there’s very little value in demanding it. So why not just have zero ground rent? Well, for a contract to be legally binding each side must offer the other “consideration”. This means that each party must provide some form of value to the other. The existence of a peppercorn also prevents the leaseholder from laying claim to the land and puts in place a formal relationship between the two parties.
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