Can a Freeholder Increase Ground Rent?

Ground rent is a term familiar to many leaseholders, yet its implications can often be unclear. Understanding ground rent, especially regarding increases, is crucial for leaseholders. This article aims to clarify whether a freeholder can increase ground rent, examining legal, contractual, and practical aspects.

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Understanding Ground Rent

Ground rent is a regular payment made by the leaseholder to the freeholder, as stipulated in the lease agreement. It is a distinguishing feature of leasehold properties, where the leaseholder has a right to occupy and use the property for a set number of years, decades, or centuries, but not the land on which it stands.

Ground rent has historical roots, dating back centuries, where it served as a form of income for landowners. Today, while its relevance persists, particularly in urban areas with high property density, its terms and conditions are much more regulated.

Before we explore ground rent increases in more detail, it’s important to note that purchasing your freehold can be an effective solution for leaseholders wanting to remove their ground rent.

Use our Freehold Purchase Calculator today to get an instant estimation of the value of your share of freehold and start taking back control of your ground rent.

The short answer is yes, but only under specific conditions outlined in the lease. The lease agreement is paramount in determining if and how ground rent can be increased. It’s also important to note that new ground rents are banned under the Leasehold Reform (Ground Rent) Act 2022. This act applies to new residential long leases, ensuring zero ground rent for future leaseholders.

Here are the only mechanisms by which ground rent can be increased:

Fixed Increases

Some leases have fixed increments at set intervals, which are pre-agreed in the lease. For example, ground rent might increase by a fixed amount every 10 or 20 years, or you may have a doubling ground rent which doubles every 25 or 50 years. These increases are predictable and known to the leaseholder from the start, though they can often be incredibly high. In one case, we found a ground rent that increased to over £1,000,000 a year after successive doublings.

RPI-linked Increases

Some leases tie ground rent increases to the Retail Prices Index (RPI), adjusting for inflation. These adjustments are tied to economic indicators like the RPI. If inflation rises, ground rent increases accordingly, ensuring the freeholder’s income keeps pace with the theoretical ‘value of money’.

Flat Value Increases

Although concerning, in rare cases, ground rent may increase in line with the property’s value. This can lead to very high rents, especially in London and the home counties where property values are very high.

The Role and Rights of the Freeholder

Freeholders own the land on which leasehold properties are built. Freeholder responsibilities and rights include:

Collecting Ground Rent: Freeholders have the right to collect ground rent as specified in the lease.
Maintaining the Property: Freeholders are typically responsible for maintaining the structure and common areas of the building.
Enforcing Lease Terms: They must ensure leaseholders comply with the lease terms, including ground rent payments.

The lease agreement defines the relationship between freeholders and leaseholders, outlining each party’s rights and obligations. Understanding your lease is crucial in knowing when and how ground rent can be increased.

Legal Framework Governing Ground Rent Increases

Several laws govern ground rent and its increases:

Landlord and Tenant Act 1985: This act includes provisions to protect leaseholders from unfair rent increases.
Housing Act 1988: Provides further protections, particularly around ground rent payment and leasehold reforms.
Leasehold Reform (Ground Rent) Act 2022: Bans new ground rents, ensuring zero ground rent for new leases.

These laws and the terms outlined in lease agreements protect leaseholders from unjust increases, ensuring any changes to ground rent are clear and agreed upon upfront. The 2022 act also stops any increases to existing ground rent upon lease extension.

How To Challenge Ground Rent Increases

Leaseholders have the right to challenge unfair ground rent increases and request justification for any ground rent increases they are notified of. If you’re notified of a ground rent increase, consider these steps:

Review the Lease: Check the terms of your lease to understand the grounds for any increase.
Request Justification: Ask the freeholder to explain the basis for the increase.
Gather Evidence: Collect any relevant documents or correspondence.
Negotiate: Try to negotiate a fairer rate directly with the freeholder.

If you believe an increase is unjust or not in line with the lease agreement, you can then:

Seek Professional Advice: Consult a solicitor or freehold specialist who understands the ins and outs of leasehold law.
Tribunals and Legal Avenues: Disputes over ground rent can be taken to a tribunal. Tribunals can assess whether increases are fair and in accordance with the lease terms.

Practical Advice for Leaseholders

Understanding your lease agreement and ground rent obligations is crucial. Here are some practical tips:

Always Review Your Lease: Regularly review your lease to stay informed about your rights and obligations.
Seek Professional Advice: If in doubt, consult a solicitor experienced in leasehold law.
Consider Collective Enfranchisement: This process allows leaseholders to collectively buy the freehold of their building, taking control over ground rent and other issues.

The Freehold Collective offers services to help leaseholders with collective enfranchisement. By buying the freehold, leaseholders can manage their own ground rent and avoid onerous ground rent clauses.

Closing Thoughts

Understanding ground rent and the conditions under which it can be increased is essential for leaseholders. To sum up, a freeholder can increase ground rent, but only under specific, pre-agreed conditions outlined in the lease.

Purchasing your freehold offers a viable solution to dealing with costly ground rent clauses. By acquiring the freehold, leaseholders in the same property can not only gain greater control over their property costs but also eliminate unpredictable and potentially burdensome ground rent increases.

The Freehold Collective stands ready to support leaseholders through every step of this process, providing expert guidance and comprehensive services to ensure a smooth transition to collective ownership.

Try our free Freehold Purchase Calculator today to get started!

Freeholders & Ground Rent FAQs

Can ground rent be increased at any time?

No, ground rent increases must follow the terms specified in the lease agreement. Arbitrary increases are not allowed, and you only have to pay ground rent that is legally requested.

What are my rights if I find the ground rent increase unreasonable?

You can challenge the increase through a tribunal or seek legal advice to ensure it aligns with your lease agreement.

How often can ground rent be increased?

The frequency of ground rent increases is specified in the lease. Common intervals are every 10, 25, or 50 years, depending on the lease terms.

Is there a cap on how much the ground rent can be increased?

Caps on increases depend on the lease terms. Some leases have fixed caps, while others may link increases to inflation indices like the RPI. Understanding your lease and seeking professional advice are crucial steps in navigating ground rent increases and protecting your rights as a leaseholder.