Ground Rent Explained: A Guide for Leaseholders
Everything you need to know about ground rent, from understanding who pays ground rent and how it is calculated to the 2022 reforms that changed the rules for new leases. Learn whether ground rent has been abolished, what escalating clauses mean for your home, and how ground rent collection works in practice.
What Is Ground Rent?
Ground rent is a payment made by a leaseholder to the freeholder of a property, typically on an annual basis. It is a financial obligation set out in the lease and exists because the leaseholder owns the right to occupy the property for a fixed term, while the freeholder retains ownership of the land on which the building stands. In simple terms, ground rent is the price you pay for the privilege of occupying land that belongs to someone else.
Unlike a service charge, which pays for the maintenance and management of the building and its communal areas, ground rent does not fund any services. It is simply a charge payable to the freeholder as a condition of the lease. The distinction between ground rent and service charge is important: your service charge should reflect the actual cost of managing the building, while ground rent is a separate obligation entirely.
Who pays ground rent? Every leaseholder whose lease includes a ground rent clause is liable to pay it. This applies to owners of leasehold flats in purpose-built blocks, converted houses, and mixed-use developments alike. The amount, frequency, and any escalation provisions are defined in the individual lease. If you are buying a leasehold property, it is essential to check the ground rent terms before you commit to a purchase.
Ground Rent Reform and the Leasehold Reform Act
The question when will ground rent be abolished is one of the most frequently asked by leaseholders in England and Wales. The answer is that ground rent has already been effectively abolished for new leases, but existing leases are not yet affected. The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022 and restricts ground rent on most new residential long leases to one peppercorn per year, which has no financial value.
This means that if you take out a new lease on a flat or house on or after 30 June 2022, your ground rent will be a peppercorn. The same applies to statutory lease extensions completed after that date: the lease extension process now results in a peppercorn ground rent as a matter of law. The Act was a landmark moment in leasehold reform, and many leaseholders have asked whether ground rent abolished provisions will eventually be extended to cover existing leases.
For existing leaseholders, the position is more complex. If your lease was granted before 30 June 2022, the ground rent clause in your lease remains fully enforceable. The government has signalled an intention to address ground rent charges on existing leases through future legislation, but no law has yet been passed to do so. This means that leaseholders on older leases must continue to pay their ground rent as demanded, and freeholders retain the right to collect it.
Is ground rent still legal? Yes, for leases granted before the 2022 Act, ground rent remains entirely legal and enforceable. The Act only applies prospectively to new leases. If you want to understand how the reforms affect your specific situation, our leaseholder rights guide explains your entitlements in detail.
Escalating Ground Rent Clauses
One of the most significant concerns for leaseholders is the presence of escalating ground rent clauses in their lease. These clauses cause the ground rent to increase over time, sometimes dramatically. There are several common types of escalation provision, and understanding how is ground rent calculated under each type is essential for assessing the long-term cost of your lease.
Doubling Clauses
Some leases contain clauses that double the ground rent at fixed intervals, typically every 10, 15, or 25 years. A ground rent starting at 200 pounds that doubles every 10 years would reach 3,200 pounds after 40 years and over 25,000 pounds after 70 years. These clauses have been widely criticised and are a key reason why the 2022 reforms were introduced for new leases.
RPI-Linked Clauses
Some leases link ground rent increases to the Retail Prices Index (RPI). While these escalate more gradually than doubling clauses, they still result in significant increases over a long lease term. An RPI-linked ground rent can grow unpredictably depending on inflation, making it difficult for leaseholders to budget for future costs.
The 250 Pound Threshold
Escalating ground rent charges become particularly dangerous when they cross the 250 pound per year threshold in England. At this point, the lease may be treated as an assured shorthold tenancy under the Housing Act 1988, giving the freeholder potential forfeiture rights. This means that unpaid ground rent above 250 pounds could, in the worst case, lead to the loss of your home. Leaseholders with escalating clauses should check whether their ground rent has reached or is approaching this critical level.
If your lease contains an escalating clause, buying out ground rent may be a viable option. This involves negotiating with the freeholder to vary or remove the ground rent clause, or extending your lease through the statutory process, which reduces ground rent to a peppercorn. Our ground rent management team can advise you on the best approach for your circumstances.
Ground Rent Collection and Management
Ground rent collection is typically handled by the freeholder or their appointed managing agent. The process must comply with strict legal requirements. Under Section 166 of the Commonhold and Leasehold Reform Act 2002, ground rent is not payable unless the landlord has served a formal demand in the prescribed form. This demand must specify the amount due, the period it relates to, and the date by which payment must be made.
What happens if ground rent is not collected? If the freeholder or managing agent fails to serve a valid demand, the leaseholder is not obliged to pay. The ground rent does not accrue as a debt until a proper notice has been issued. However, the freeholder retains the right to serve demands retrospectively for up to six years of arrears under the Limitation Act 1980, provided the correct procedure is followed for each demand.
At Block, our approach to ground rent management ensures that all demands are issued correctly and on time, protecting both the freeholder's income and the leaseholder's rights. We handle the entire ground rent collection process, from issuing prescribed-form notices to managing arrears and maintaining clear financial records.
- Demands issued in the prescribed form required by Section 166
- Clear records of all ground rent payments and arrears
- Timely follow-up on unpaid ground rent with fair and proportionate arrears procedures
- Transparent reporting to freeholders on collection rates and outstanding balances
- Guidance for leaseholders on their rights and obligations regarding ground rent
- Advice on lease variations and buying out ground rent where appropriate
For full details of our ground rent collection and administration services, visit our ground rent management services page. Whether you are a freeholder looking for a reliable collection service or a leaseholder with questions about your obligations, our leasehold management team is here to help.
Frequently Asked Questions About Ground Rent
Is ground rent now illegal?
Ground rent is not illegal on existing leases. The Leasehold Reform (Ground Rent) Act 2022 only applies to new residential leases granted on or after 30 June 2022, restricting ground rent to a peppercorn (effectively zero). If your lease was granted before that date, the ground rent clause in your lease remains legally enforceable, and your freeholder or managing agent is entitled to collect it. Leaseholders on older leases should review their ground rent clauses carefully, especially if they contain escalation provisions, and seek advice if the amount feels unreasonable.
Can I refuse to pay ground rent?
You should not refuse to pay ground rent if it is lawfully demanded under the terms of your lease. Ground rent is a contractual obligation, and failure to pay can have serious consequences. If your ground rent exceeds 250 pounds per year in England or 50 pounds per year in Wales, the freeholder may be able to use forfeiture proceedings to reclaim the lease. Even where forfeiture is not available, unpaid ground rent can accrue as a debt, and the freeholder can pursue you through the county court. If you believe the demand is invalid, seek legal advice before withholding payment.
What happens when the ground rent of a leasehold goes above 250?
When ground rent on a leasehold property in England exceeds 250 pounds per year, the lease may be classified as an assured shorthold tenancy under the Housing Act 1988. This gives the freeholder the right to seek possession of the property through forfeiture if the ground rent is unpaid for a specified period. This 250 pound threshold is a critical concern for leaseholders with escalating ground rent clauses, particularly doubling clauses that can push an initially modest rent above this limit over time. Leaseholders in this position should seek specialist advice about buying out or varying the ground rent clause.
How far back can ground rent be collected?
Ground rent can generally be collected going back six years under the Limitation Act 1980, which applies to contractual debts. However, the freeholder or managing agent must have served a proper demand in the prescribed form before the ground rent becomes due. Under Section 166 of the Commonhold and Leasehold Reform Act 2002, ground rent is not payable unless the landlord has given the leaseholder a notice in the prescribed form specifying the amount due, the period it relates to, and the date by which it must be paid. Without a valid demand, the ground rent does not fall due, regardless of how much time has passed.
Is ground rent tax deductible?
For individual leaseholders who live in their property as their main home, ground rent is not tax deductible. It is treated as a personal living expense. However, if you are a landlord who lets the property to tenants, ground rent payments are an allowable expense that can be deducted from your rental income for income tax purposes. Similarly, if the property is held within a company structure, the ground rent is a deductible business expense. The tax treatment depends entirely on how the property is used, so leaseholders who let their flat should keep records of all ground rent payments for their tax return.
What is the new ground rent rule?
The new ground rent rule was introduced by the Leasehold Reform (Ground Rent) Act 2022, which came into force on 30 June 2022. Under this legislation, ground rent on most new residential long leases in England and Wales is restricted to one peppercorn per year, which has no financial value. This applies to new leases granted on or after that date, including lease extensions completed through the statutory process. The Act does not apply retrospectively to existing leases, so leaseholders on pre-2022 leases continue to pay the ground rent specified in their lease. The government has indicated that future reforms may address ground rent on existing leases, but no legislation has been enacted to do so.
Need Help With Ground Rent?
Whether you need professional ground rent management for your building, advice on buying out ground rent, or help understanding your leaseholder rights, Block is here to help. Our experienced team manages ground rent collection across hundreds of buildings nationwide.