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What happens if ground rent is not collected? Specialist Freehold & Leasehold solicitors If you own a leasehold property, the lease gives the freeholder the right to collect ground rent. The penalties for any leaseholder failing to pay this charge can be severe, including forfeiture of your property. We explain what ground rent is and answer the question “what happens if ground rent is not collected“?

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What is ground rent?

Ground rent is a freeholder’s charge to a leaseholder for the right to occupy a property. The freeholder, sometimes referred to as landlord, owns the land and buildings. The leaseholder leases their property from the freeholder and pays them ground rent.

Sometime, the ground rent is what is known as a peppercorn – in simple terms that means no payment is necessary. But more often it’s a specified sum of money and it is essential to pay it when demanded.

But hasn’t ground rent been abolished?

Yes and no. The Leasehold Reform (Ground Rent) Act which came into force back on June 30, 2022, did abolish ground rents for most new residential leasehold properties in England and Wales. But the critical word there is NEW. Ground rents were not automatically abolished for existing leases.  And that means any lease that existed before June 30, 2022, may still haveis charges to pay.

The legislation was created to prevent developers and other freeholders from requiring substantial sums in ground rent and including provisions in leases allowing the doubling of the ground rent every few years. Some properties with leases including this type of clause have lost value and leaseholders have found it difficult to mortgage or sell them.

N.B. If an existing lease is surrendered and re-granted, it’s likely that the new rules apply and there will be no ground rent.

Will there be further changes?

Nothing is certain, but it does seem quite likely. In November 2024, the Labour Government announced plans for a further Leasehold and Commonhold Reform Bill. But as at January 2025, we haven’t even seen a draft of the bill – although the Government do seem to be suggesting that they will regulate, but not necessarily abolish, ground rents entirely. It remains to be seen what that means in practice.

In the meantime, you still need to pay ground rent when demanded. As explained above, you should also pay it even if you do not receive a demand.

Who has to pay?

The leaseholder has to pay ground rent when they take over the lease. For example, you will be liable for payment of these charges if you buy a flat. Your conveyancing solicitor will check that the seller paid the ground rent up to the date of your purchase.

If there are arrears, your conveyancer will request an allowance for this, plus any costs, from the seller. On completion, you should clear the arrears and costs.

For leases granted before 30 June 2022, you must pay the ground rent when you receive a formal, written demand from the freeholder. If you do not pay, the freeholder can take legal action.

If there are arrears, the freeholder can request up to six years’ worth plus the costs of collecting them.

Can my freeholder increase the ground rent?

Freeholders can only increase ground rent in accordance with the terms of the lease. Your conveyancing solicitor should have explained any potential increases when you bought your property. If you are not sure whether increasing your ground rent is allowed, have a look at your lease.

The lease may allow a fixed percentage increase or an increase in line with a benchmark figure, such as the Retail Price Index. With that kind of clause in your lease, any increase should not exceed this.

How should a ground rent demand be served?

The freeholder must send you an official written demand, as required under Section 166 of the Commonhold and Leasehold Reform Act 2022. This must include:

·         Your name as the lessee

·         The freeholder’s name and address

·         If there is a managing agent, their name and address

·         The period the demand covers

·         The amount of the payment

·         The deadline for payment

The payment deadline must not be less than 30 days or more than 60 days after the date the notice is given to you. In addition, it cannot be earlier than the date on which it is due under the terms of the lease.

The demand can be posted to you at the property, unless you have notified the freeholder of a different address.

What happens if ground rent is not collected?

The law states that ground rent must be paid only if the freeholder issues a formal demand in the prescribed form.

However, there is a serious risk to you if you don’t pay, even if the freeholder does not appear to be trying to collect it. The freeholder could tell the court that they have sent a demand. If the court accepts this, it will assume that you have ignored the demand and may allow forfeiture of your lease, meaning you would lose the property.

In addition, if you pay late, the freeholder may start adding their collection costs to the debt. Even if you pay the ground rent, this will leave you with a debt and a continuing legal problem.

To avoid difficulties, we strongly advised that you pay the ground rent on time, in accordance with the requirements of the lease, even if you do not receive a demand. You should ask the freeholder to provide you with a receipt or ensure that you have clear evidence that you have paid the correct sum to them on time.

What happens if you don’t pay your ground rent?

If you receive a demand for ground rent but fail to pay it within the time limit, your freeholder can take legal action against you to recover the money. They may also be able to repossess your property.

In order for the freehold to start legal action, you must:

·         Be required to pay annual ground rent of more than £250, or £1,000 in London

·         Owe three years or more of arrears

·         Owe £350 or more in ground rent or ground rent plus service and administration charges

·         Have failed to pay any sums due following receipt of a correct demand

If you receive notice that your freehold is taking you to court for non-payment of ground rent, you should speak to an experienced specialist leasehold dispute solicitor immediately to protect your property.

By paying all arrears plus any costs promptly and, where applicable, remedying any other breach of the lease, you may be able to avoid forfeiture of the lease. This is because the court has the power to grant relief from forfeiture and will often do so, provided the leaseholder has cleared all arrears and paid any related costs.

If the court orders you to pay the arrears and you fail to do so, the freeholder can seek an eviction order and use enforcement agents to repossess the property.

How far back can ground rent be claimed?

The Limitation Act 1980 allows the freeholder to claim ground rent for the previous six years but no more. However, if they take action to recover any arrears, they are likely to claim their legal costs as well.

Even if you did not own the property for all six years, you will still need to pay the arrears and associated costs for the whole period, provided the demand was correctly drafted and served.

What happens if ground rent was not paid by the previous leaseholder?

Ideally, your solicitor will have asked the seller to provide a copy of an up-to-date ground rent receipt when you bought the property. They should also have asked the freeholder or managing agent to confirm that there were no arrears and that they were unaware of any breach of the lease terms.

If the seller owed any ground rent at the time of your purchase, you should clear that debt on completion. in any event, this is likely to be a requirement of your mortgage lender, if you have one. That’s because lenders take these kind of arrears very seriously on the basis that you could lose the property if ground rent is not paid.

Can I avoid paying ground rent?

It may be possible. The two main ways to do this are:

·         Extend your lease

·         Work with your fellow leaseholders to buy the freehold

Extending your lease

Most leaseholders have the formal right to require the freeholder to extend the lease in what is known as a statutory lease extension (voluntary or informal lease extensions are also possible). There is a set process to follow and in general terms, the freeholder cannot refuse a lease extension. You must follow the steps exactly. These include serving a formal notice on the freeholder notifying them of your intention and suggesting the premium you will pay.

Extending your lease has several benefits, but you should speak to a lease extension expert to discuss whether this is the right time to do it. New legislation is pending, which could make the price cheaper for some leaseholders.

If you extend your lease formally, the freeholder will only be entitled to what is known as a a peppercorn, meaning ground rent is effectively eliminated.

A freehold may agree to an informal lease extension, but you should approach this cautiously. They might not end the requirement to pay ground rent. There is also a risk that they could pull out or demand more money partway through the transaction.

Our leasehold team specialise in lease extension and freehold purchase. Over the years we’ve helped around 10,000 people extend their leases or buy their freeholds.

Click here to read more about how our specialist lease extension solicitors can help you

Buying the freehold

If you buy the freehold of your leasehold property, you can get rid of your ground rent entirely.

If your property is a flat, then you need to work with some or all of the other leaseholders in your block to purchase the freehold. At least half of the leaseholders must join in the process or both leaseholders if there are only two flats. The process of buying freehold in this way is known as collective, freehold or lease enfranchisement.

We recommend that you use an expert collective enfranchisement solicitor who will follow correct process. The first steps are usually to sign a participation agreement and create a management company to own the freehold and deal with the property management.

When the freehold purchase is completed, you will have the option to reduce the ground rent to a peppercorn. Another significant benefit of collective enfranchisement is extending all leases without the need to pay a premium.

If you own a leasehold house and have an obligation to pay ground rent, you can also eliminate that entirely by buying the freehold of your house.

Click here to read more about the leasehold enfranchisement of blocks

Click here to find out more about house enfranchisement.

Other options for eliminating ground rent

The freeholder may agree to end the ground rent or reduce it to under £250 in return for a payment. You should ask an experienced leasehold solicitor to deal with this on your behalf. They will draft a deed of variation for the freeholder to sign, then ensure it is registered.

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