What happened to peppercorn ground rents?
Most leaseholders will be familiar with ground rent; a regular payment to their landlord paid in addition to their service charge. Historically ground rent was a token or very low payment, referred to as a peppercorn by lawyers.
A peppercorn rent may seem a quaint term outside the legal community. But it is one that arose because of a legal necessity, not as a mechanism to make a profit. Something had to be exchanged, and it could quite literally be a peppercorn. However it is a term which is increasingly obsolete by reason of the rise of very large payments now sought by some landlords.
Large ground rents sought by Landlords
Some landlords now seek large ground rents when granting new leases; not just for flats but also increasingly houses. Large payments can also arise in voluntary lease extensions. The effect is to make ground rent a significant commercial payment; in no way a peppercorn.
The case reported in the media of ground rent of £666 per month seems shocking and would render a home unsaleable. Yet on a much wider scale many leaseholders have found themselves paying high sums because of complex escalator clauses where ground rent rises every few years. There are many examples of ground rents in the low thousands of pounds.
The last Labour government attempted a fix by introducing a new way of owning flats. But Commonhold was optional, and has had virtually no take up. The long-term solution is likely to be new laws to limit ground rents to prevent what some see as abuses of an antiquated mechanism for home ownership (leasehold) and the Law Commission is reviewing this area of law. Unless and until the law is changed, it is very much a case of leaseholder beware.
What can those with large ground rents do?
Many homeowners have ground rents representing a significant on-going liability, with some facing large increases in the future. Ultimately no homeowner was forced to agree such rents. There may be those who feel they did not fully understand the terms to which they agreed. And in such cases, there may be scope for claims against the legal advisers who gave advice on the transactions.
It is a salutary reminder that if you are purchasing a leasehold flat or house, considering an application to extend your lease, or if you feel you have been poorly advised in an earlier transaction, you should seek expert advice.
We can help
We have a talented pool of lawyers who are well versed in every aspect of leasehold purchase, extension/enfranchisement and disputes. Dan Ongley heads up the enfranchisement team with many years of experience of property disputes. Call us on 01273 324 041 and we will be very happy to help.