What is Peppercorn Ground Rent?
Estimated reading time 4 minutes
Property can be confusing at times, especially with all the terminology that gets thrown about. One term you’ve probably seen more about recently is peppercorn ground rent. This is because ground rent for new leases on properties bought after 30th June 2022 has been abolished, with peppercorn ground rent replacing it.
Peppercorn ground rent is a small fee, normally as low as £1, and it essentially plays the role of keeping a contract between leaseholder and freeholder as legally binding.
What’s ground rent?
A ground rent is paid when you live in a leasehold property. This is because you may own the home but not the land it sits on. By paying this rent, you, in effect, pay the landowner for the use of their land.
However, as mentioned above, ground rent for new leases on properties bought after 30th June 2022 was abolished, making the payment no longer necessary. It was instead replaced with peppercorn rent.
Typically charged at a few hundred pounds a year, ground rent could often rise fast, so much so that within a few years it has doubled. As a result, the Leasehold Reform Act of 2022 was introduced to stop these increasing, and in some eyes, unaffordable, charges.
What should be known, though, is that not all ground rents have been abolished. Where an existing lease is already in place, ground rent remains and must continue to be paid until the lease requires an extension. At this time, it can move to a peppercorn rent.
How is peppercorn ground rent different from ground rent?
Peppercorn ground rent is considerably lower than regular ground rent. In most cases, it is as low as £1 per year. Where ground rent may rise each year as per the terms of the lease agreement, peppercorn rent stays the same until the lease expires.
You might be asking, “Why peppercorn?” and this is a good question. We call it peppercorn ground rent because peppercorns were seen – many years back – as a form of currency. This then led to the term being adopted for use in lease agreements. It’s seen as a symbol for a nominal payment that means a contract fulfils its legal requirement of a value being exchanged between two parties. The value is minimal and purely symbolic, but allows for the creation of a legally binding document without the need for large sums to be exchanged between the two parties.
Does this mean my peppercorn rent won’t increase?
That’s right. Peppercorn rent should stay at a fixed amount, typically £1 for each year of the lease agreement, and then when the lease is renewed, it renews at the same amount.
If it’s only £1, why do we have peppercorn ground rent?
It might only be £1 but the significance is much larger. Having this small charge in place helps to validate the lease without it being costly to the leaseholder. It is therefore essentially in place for legal reasons. It keeps the contract fulfilled and ensures both leaseholders and freeholders remain compliant and happy.
Can I change from ground rent to peppercorn rent?
You can, but only if you wish to extend your lease by 90 years and have already lived in the property for at least two years. It can be a great way to reduce costs, especially if you had expensive ground rents in place. However, lease renewal is expensive and can easily set you back thousands of pounds. The costs can soon escalate, too. Properties with 80 years or fewer remaining on the lease are much more expensive to renew than properties with a long period remaining.
If your leasehold is in a block of flats, as they typically are, you might also consider working with other leaseholders within the building. Collectively you can purchase the freehold, switch the ground rent to a peppercorn ground rent and extend it by 999 years. This can be complicated as there may be some willing leaseholders and some not. As a result, you should consult residents and seek legal advice before making any major decisions.
If you live in a leasehold property without peppercorn ground rent, you might be paying over the odds for ground rent. We can help you avoid these by assisting you with a quick sale. You could sell your flat fast, and be in a new property with peppercorn rent in a matter of days. At Bettermove, we work with speed in mind, and to ensure your sale goes through, offer two routes to completion. We either buy your property ourselves or offer it to a team of carefully selected cash house buyers who are willing to snap up any property. With no hidden charges either, you can sell your house for free, avoiding all those costly estate agent selling fees. Contact us today to find out more.
