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Peppercorn Ground Rent

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When it’s time to sell your property, you may need to get familiar with some new terms. Common ones like ‘conveyancing’, ‘leasehold’, and ‘Japanese knotweed’ are often researched.

But some rare terms don’t often come up in house sales. ‘Peppercorn ground rent’ is one of them.

In this blog post, we’ll give you a comprehensive guide to peppercorn ground rent. We’ll explain what it is and how it may affect the sale of a property.

Table of Contents

What is Ground Rent? 

Ground rent is a fee charged by the freeholder of the land to the leaseholder. It is only payable if it is explicitly mentioned in the lease, and is due in regular instalments, similar to other forms of rent.

Ground rent can be fixed or increased, with some clauses allowing them to reach unsustainable levels.

If the ground rent remains unpaid for a long period and the freeholder has not asked for payment, they may request unpaid rent for up to six years, either in one lump sum or in several smaller payments.

The freeholder also has the right to take legal action if the ground rent is not paid.

The structure of leases has changed over time, but the basic principle of ground rent remains. It allows the leaseholder to occupy the land on which a leasehold property is constructed.

In the last decade or so, higher ground rents have been implemented, with serious implications for the leaseholder.

A ground rent of more than £250 or £1,000 in London would classify the property as an Assured Shorthold Tenancy (AST) under the 1988 Housing Act, making it difficult to be mortgageable by most lenders and the freeholder able to file for Ground 8 possession if the rent is overdue for three months.

In response, the government introduced the Leasehold Reform Act in February 2022, as well as the concept of peppercorn ground rent. This has allowed leaseholders to have more control over their ground rent payments and protected them from unreasonable increases.

What is peppercorn ground rent?

Peppercorn ground rent is a kind of ground rent that is particularly cheap. Generally, this amount is typically less than £10 a year, so landlords usually don’t even bother collecting it.

This type of rent exists because leases require ground rent to be paid, along with an insurance premium and money for maintenance.

In some cases, the rent is so low that it’s not worth collecting, so a landlord may opt for peppercorn ground rent instead, to comply with the lease requirements.

Peppercorn rents are common where there are long leases, possibly because inflation is not taken into account.

Peppergound rent
Peppercorn rents are common where there are long leases, possibly because inflation is not taken into account.

Where does the name ‘peppercorn ground rent’ come from?

The term ‘peppercorn ground rent’ can be found in the history books. In the 16th and 17th centuries, renters sometimes paid their landlord with a peppercorn, yes, the edible kind. Flowers were also a common form of payment.

By the end of the next century, the term ‘peppercorn’ in the UK had come to mean anything of little value.

Can Ground Rent be changed to Peppercorn?

It is possible to change ground rent to peppercorn. This can be done through something called ‘collective enfranchisement’.

This means that all the leaseholders of a property can purchase the freeholder and implement a peppercorn ground rent while extending the lease to 999 years.

Another way is if a leaseholder wishes to extend their lease, which they are entitled to do by law in the UK. If they have lived in the property for more than two years, the lease extension can be peppercorn ground rent.

How does peppercorn rent work?

Have you ever wondered how renting with Peppercorn works? 

  • Ground rent can range greatly depending on the type of property and its location, but usually, owners of leasehold properties pay between £300 and £700 annually – though there are cases when it can exceed £1 million!
  • Often, ground rent is set for the duration of the lease, but some modern leases include escalating ground rentals. This means that the freeholder can increase the rent paid in line with inflation at regular intervals.
  • On the other hand, some older leases may not reflect inflation, resulting in a lower rent amount. It is not uncommon for the ground rent to be as low as £1 to £10, making it not worth the freeholder’s time and effort to collect it.
  • In such cases, it could be more sensible to set the ground rent to zero in the lease. However, for a lease to be legally binding, each side (the landlord and tenant) must provide something of value to the other, known as ‘consideration’.

Traditionally, peppercorns were used as the least valuable yet monetarily valuable item, and so the term stuck. A peppercorn would be deemed valuable enough to make the lease contract valid and thus serve as a token or nominal rent.

What is the Leasehold Reform Act 2022
It is essential to research the Act carefully and seek advice from legal and housing professionals before making decisions related to this Act.

What is the Leasehold Reform Act 2022?

In June 2022, the UK government passed the Leasehold Reform Act 2022. This act states that ground rent must not exceed one peppercorn per year if it is demanded as part of a regulated new residential long lease. Furthermore, landlords are not allowed to charge administration fees for collecting this rent.

The Act applies only to leases granted or under contract before 30 June 2022, and to ‘regulated leases’ which are leases of:

  • A single dwelling (longer than 21 years)
  • Not an “Excepted Lease”,
  • Granted for a premium,
  • Granted after the commencement day (i.e. 30 June 2022).

It is essential to research the Act carefully and seek advice from legal and housing professionals before making decisions related to this Act.

Leasehold versus Freehold

Owning property can be tricky – but We Buy Any Home is here to help. Our webpage about leaseholds and freeholds provides you with the information you need to understand this complex topic.

Our goal at Property Saviour is to make it easier for you to understand the property market. By clicking on the link above, you’ll learn the difference between a leasehold and freehold, and what it means for you and your home.

Is Peppercorn Ground Rent still relevant today?

Yes, Peppercorn Ground Rent is still relevant today, primarily due to its historical and symbolic value. Even though the financial impact is negligible, it is a legally binding requirement in a lot of lease agreements.

Can the amount of Peppercorn Ground Rent change
Peppercorn Ground Rent is not the same as regular rent. Regular rent payments are usually more substantial and cover the use of the property, while Peppercorn Ground Rent is a nominal and symbolic payment.

Can the amount of Peppercorn Ground Rent change?

The amount of Peppercorn Ground Rent is generally fixed at a nominal sum, often one pound per annum, and is not subject to inflation or market fluctuations.

What happens if a leaseholder fails to pay Peppercorn Ground Rent?

If a leaseholder fails to pay the Peppercorn Ground Rent, legal consequences may follow, such as eviction or forfeiture of the lease, so leaseholders need to fulfil this obligation to preserve their leasehold rights.

Peppercorn Ground Rent is not the same as regular rent. Regular rent payments are usually more substantial and cover the use of the property, while Peppercorn Ground Rent is a nominal and symbolic payment.

Can Peppercorn Ground Rent be negotiated?

In most cases, ground rent set at a peppercorn rate is not negotiable. This is due to it being a fixed legal requirement in lease agreements. Therefore, attempting to negotiate this fee is generally not possible.

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