Ground rent is a charge a leaseholder pays to the freeholder for the land a leasehold property sits on. It is set out in the lease and is separate from any service charge covering the building's upkeep and shared areas.
In one line: Ground rent is a payment a leaseholder makes to the freeholder for the land under the property.
How ground rent works
Ground rent amounts and review patterns are written into the lease. Some are nominal, sometimes called a peppercorn, while older leases can include clauses that double the rent at set intervals.
A flat might carry ground rent of 250 GBP a year. A lease that doubles every ten years could see that reach 500 GBP, then 1,000 GBP, which can deter lenders and buyers.
For most new long residential leases granted since 30 June 2022, ground rent is restricted to a peppercorn, meaning effectively zero, under the Leasehold Reform (Ground Rent) Act 2022.
Ground rent vs a service charge
Ground rent is paid for the land alone and buys no service in return. A service charge pays for actual maintenance, insurance and management of the building and communal areas.
Both are leaseholder costs, but only the service charge funds upkeep. Where a lease still demands ground rent, it has to be paid on time, as arrears can give the freeholder grounds to take action.
Primary source: GOV.UK: Leasehold property