Why did freeholders start charging over £250 in ground rent?

Ground rent is an annual charge payable by a freeholder to an owner of a leasehold flat or house for renting the ground their property sits on. Back in the 1970s when leasehold flats were being built a rent of £10 was a lot of money, however many leases didn't have a clause to increase this which meant that ground rent in 2000 at £10 was a nominal sum and easily payable for most leaseholders. In the 2000s, new leaseholds started having higher ground rent charges within the lease that also included doubling ground rent clauses. This meant your ground rent could increase to £1,000s over a 10 to 20 year period.

Is charging ground rent over £250 illegal?

On the 15th September 2021 a bill was brought from the House of Lords, with a goal to make buying leaseholds more affordable by making sure freeholders could not make a financial demand for payment of ground rent. The reason for this was that some ground rent clauses were starting at levels of £250 or more and included increased provisions every 10 to 20 years. Freeholders breaching the ground rent restrictions would be a civil offence, with a financial penalty of between £500 and £30,000.

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Is your ground rent over £250?

by:

Andrew Boast

Last Updated: 29/05/2024

Read by:

8,094

5 min read

The PM has confirmed that the draft Commonhold and Leasehold Reform Bill, published in January 2026, will cap ground rents at £250. This is unlikely to come into force until at least 2028. The Leasehold Reform (Ground Rent) Act 2022 already ended ground rents for most new long residential leases, but this latest legislation promises to help owners of pre-existing leases.

Ground rent is payable to a freeholder by the leaseholder, normally on an annual basis, and the cost could be as little as £10. Over the years, freeholders have looked to make more money from leaseholders on an annual basis, and have increased the ground rent payable.

Ground Rent on Lease Extensions

Under the Leasehold Reform (Ground Rent) Act 2022, leases extended informally must have peppercorn ground rent for the duration of the extension, once the pre-existing lease has expired. When following the formal route, the ground rent falls to peppercorn from the completion of the lease extension, so it affects the remainder of the pre-existing lease as well as the new extension.

Where the ground rent exceeds £250 then you may need to draft a deed of variation prior to selling, or else you will struggle to find a buyer who is getting a mortgage to buy your property.

What is the problem with having ground rent over £250?

When your ground rent is more than 0.1% of the property value, or £250 (£1,000 in London), whichever is higher, or there is a clause in the lease that could mean it might increase to this level, you will struggle to:

get a mortgage
remortgage your home or buy to let
sell your home

The main reason for this is that ground rent over the £250 or £1,000 (in London) makes the lease an Assured Shorthold Tenancy (AST) which means the provisions of the Housing Act 1988 come into force and mean you could lose your leasehold if you fail to pay your ground rent. Most mortgage lenders won't lend where this is the case so in order to sell the property or remortgage, you need to negotiate with the freeholder to reduce the ground rent and for this to be noted within a deed of variation.

What is the Housing Act 1988?

If your lease commenced after 1988 and is a long lease then your leasehold property could be considered as an Assured Shorthold Tenancy (like an AST rental agreement when you rent from a landlord) if:

You pay more than £250 per year in ground rent (£1,000 for properties in London); and
The property is your principle residence.

If this applies to you then it means the standard rules for leaseholders around forfeiture (and indeed relief from forfeiture) do not apply. This means that your normal thresholds for ground rent arrears and service charges do not apply when determining if you have breached your lease. The determination now sits within the Housing Act 1988 for tenancies.

What are the rules under the Act

Housing Act 1988 - Grounds on which Court must order possession

Ground rent is defined as "rent lawfully due from the tenant" so if you have groung rent over £250 (£1,000) in London and you fail to pay you fail to pay your ground rent within three months then the Freeholder could file a Section 8 Notice and take back your leasehold from you. The exact wording states "if rent is payable yearly, at least three months’ rent is more than three months in arrears".

Whilst these are the grounds on which the Court must order possession, in practice could it happen? No it goesn't guarantee that the Court will grant a possession order but the risk is why mortgage lenders may choose not to lend on the property.

How do you reduce your ground rent?

1

Speak to your freeholder to agree to reduce the rent

2

Once agreed, the freeholder and leaseholder instruct a solicitor to draft a deed of variation and all parties sign and have it witnessed

3

The deed is registered alongside the lease at the Land Registry

Does a deed of variation replace the whole lease?

No. The deed of variation will sit alongside the lease and will vary just the ground rent clause. Once drafted, executed and registered, the deed of variation has varied the ground rent clause and will allow an easier sale, purchase or remortgage.

Frequently Asked Questions

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Written by: Andrew Boast

Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.

Reviewed by: Caragh Bailey

Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.

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