What is ground rent? A plain English guide for leaseholders

Ground rent is a regular payment a leaseholder makes to the freeholder under a long lease. Here is what it is, how much it usually costs, how it differs from a service charge, and how the 2022 reform changed it.

If you own a flat, or a house on a long lease, you may have come across a payment called ground rent. It is one of the more confusing parts of leasehold ownership, partly because the name makes it sound like ordinary rent. It is not. This guide explains, in plain English, what ground rent is, how much it usually costs, how it differs from a service charge, and how recent reform has changed it.

What ground rent is

Ground rent is a regular payment that a leaseholder makes to the freeholder under a long lease. In return, the leaseholder has the right to occupy the property for the length of the lease, often 99, 125, or 999 years. The freeholder still owns the land the building sits on, and the ground rent is the sum paid for that.

The key point is that ground rent is not rent in the everyday sense. You are not renting a place to live from a landlord on a short tenancy. You own a long lease, which is a substantial property interest you can buy, sell, and mortgage. Ground rent is simply one of the obligations that comes with that interest. The amount, and when it falls due, are set by the lease itself, not by the freeholder deciding year to year.

How much is ground rent?

There is no single figure. The amount is whatever the lease says. Historically, ground rents were small fixed sums, ranging from a few pounds to a few hundred pounds a year. At the lower end, some long-standing leases set rents of only £6 to £12 a year, sums that have not changed in decades.

Some more modern leases set higher figures, and a number contain rents that rise over time, for example doubling at set intervals or rising in line with inflation. Because the terms vary so widely, the only reliable way to know what you owe is to read the ground rent clause in your own lease, or to check the figure stated on any demand you receive.

Ground rent vs service charge

This is one of the most common points of confusion, so it is worth being clear. Ground rent and a service charge are two different payments.

In short, ground rent is a fixed payment for the land, while a service charge funds the upkeep of shared areas such as the roof, hallways, lifts, and grounds. A leaseholder may pay both, but they are governed by different parts of the lease and are usually itemised separately.

Peppercorn and the 2022 reform

You may see leases that reserve a peppercorn ground rent. This is a nominal or nil rent: the lease formally reserves a rent, but nothing real is ever collected. The term comes from the historic practice of reserving a single peppercorn as a token. You can read more in our guide to peppercorn ground rents.

The law in this area has changed. Under the Leasehold Reform (Ground Rent) Act 2022, ground rent on most new long residential leases granted from June 2022 onwards is capped at a peppercorn, meaning no real ground rent can be charged. This does not automatically wipe out ground rent on leases granted before that date. For more on what the reforms cover and what is still being debated, see our guide to whether ground rent is being abolished.

Do you have to pay it?

If ground rent is reserved by a valid long lease and is properly demanded, it is payable. For leasehold property, there is an important formality. The freeholder must serve a formal notice under Section 166 of the Commonhold and Leasehold Reform Act 2002 before the ground rent becomes due. Until that notice is served in the correct form, the rent is not yet payable, and no interest or penalty can be added for late payment. Our guide on what a Section 166 demand is and how it must be served covers this in full.

There is one distinction worth flagging. Ground rent on a leasehold property is not the same as a chief rent or rentcharge on a freehold house. A rentcharge is a yearly sum charged on a freehold, governed by different law, and demanded in a different way. If you own a freehold house but still receive a yearly demand, it may be a rentcharge rather than ground rent. Our guide on what a rentcharge is explains the difference. For more on when a leasehold demand has to be paid, see do I have to pay ground rent.

A note on scope: this is general information about ground rent, not legal advice on your particular property or lease. Your lease, your title documents, and where needed a solicitor are the right places to confirm exactly what applies to you.