Ground Rents

Ground rent refers to a payment which is made under the terms of a long-term lease agreement by a leaseholder to the freeholder.

Under the terms of a lease agreement, the freeholder (the outright owner of the land or property) grants permission for a leaseholder to take ownership of the property for a pre-defined period of time. This could range from 21 years to as much as, in some rare cases, 999 years and during this time the leaseholder will pay ground rent to the freeholder.

As a freeholder, leasing property for the purpose of collecting ground rent can be a potentially good value investment in the long term. Ground rents are usually unaffected by falls in interest rates and both non-tax payers and basic rate tax payers will find that the income generated is largely unaffected by taxation.

However, a number of factors mean that those currently leasing their properties could find it difficult to make ground rent collection work as an investment.

The most obvious issue with leaseholds is the length of the lease period itself, with leases lasting for at least 21 years in the majority of cases and often much longer. Ground rents themselves are often quite low and there are restrictions on when and how increases in ground rent can be introduced into a lease agreement. During periods of economic inflation, this can mean that the freeholder can actually see diminishing returns year-on-year from ground rent income in real terms.

It can also be extremely difficult to recover debts from late payers, with a complex and lengthy rent recovery system in place which makes it difficult to take debtors to court over unpaid ground rent.
For more information to see how Swift Capital can help you if you have a property that is producing income through ground rent contact us.