Ground Rents and Service Charges in Residential Leasehold Property Explained

May 16, 2023

If you own a leasehold property, you will be liable to pay various additional fees to the freeholder. This includes ground rent and service charges.

Ground rent and service charges can often form the basis of disagreements and disputes between leaseholders and freeholders, so it is important that you have a clear understanding over how they work and how they are dealt with.

Here, we explain both ground rent and service charges, what they both include and how much you may be expected to pay as a leaseholder.

What is Ground rent?

Ground rent is a regular payment made to the freeholder of the leasehold property as a condition of the lease. Ground rent exclusively applies to leasehold properties.

What is included in Ground Rent?

Ground rent is simply the charge applies for renting out the land on which the leasehold property sits. It does not cover the costs of any additional services that the freeholder might provide – these are covered under service charges (discussed in detail below).

How much is Ground Rent?

In the UK, there are no set guidelines which dictate how much ground rent will cost for a leaseholder. Technically, freeholders could charge whatever they like for ground rent, though the annual fee is unlikely to exceed more than £500 (£1,000 for London properties).

The average ground rent is likely to sit between £200 and £500 per annum – though this is not the case for anyone buying a new property on a long lease (21 years or more).

Has ground rent been abolished?

In response to growing concerns surrounding ground rent in the UK, the government introduced new laws surrounding certain leasehold practices. As of 30 June 2022, The Leasehold Reform (Ground Rent) Act 2022 has banned ground rents for anyone buying new homes on long leases.

This reform does not apply to existing leaseholders. They will continue to face ground rent charges while they own their property on a leasehold basis. This will remain the case unless you, as the leaseholder, purchase the freehold, or a share of the freehold, of the property.

What is a service charge?

A service charge is a fee that is payable to the landlord/freeholder by the leaseholder of the property. They relate to the services that the landlord/freeholder is obliged to provide under the terms of the lease.

What do service charges include?

Exactly what a service charge will relate to will depend on the terms of the lease. Typically, they will relate to services such as:

• General maintenance and repairs
• Management costs
• Building insurance
• Caretakers or concierges
• Work on shared areas or general building structure

How much are service charges?

The cost of service charges will vary depending on the property and the terms of the lease. A breakdown of the service charges will be provided in a statement, detailing the expected annual or bi-annual costs.

Typically, service charges for flat will be in the region of £1,000 to £2,000 per year, but they can often exceed this for new-build flats and flats in London.

Who pays for a service charge?

The terms of the lease should explain how the service charge is handled. In some cases, it may be the landlord/freeholder who pays the service charge, using rent payments to cover the costs. The costs could also be split between the landlord/freeholder and leaseholder, or entirely paid by the leaseholder.

What happens if Ground Rent or service charges are not paid?

If you do not pay the ground rent which is due on a leasehold property, the freeholder may be entitled to take legal action against you.

The freeholder may be able to obtain a court order which will allow them to recover any money which is owed to them. In some cases, they may also be able to regain possession of the property by bringing forfeiture action. This is only possible if you owe ground rent for at least three years and the total sum is at least £350.

Under the terms of a lease, you will be required to pay service charges, with non-payments being considered a breach of the terms.

That being said, there may be a scenario where the service charges included in a lease could be challenged. For example, if the charges are considered to be too high or the work included in the service charges has not been completed it may be possible to withhold a payment.

An expert solicitor with experience in handling leasehold property matters will be able to provide clear guidance on your current situation and what actions you will be able to take with regards to ground rent and service charges. This is where the team at Tayntons can lend their support and expertise.

Tayntons was one of first firms in Gloucestershire to be accredited by the  Law Society’s Conveyancing Quality Scheme (CQS) for standard of our residential property services. We are also Lexcel accredited by the Law Society in recognition of our strong practice management and client care.

Speak to our leasehold property experts today

If you need any support with ground rent, service charges, or any other leasehold property matters, get in touch with our residential property specialists today.

Please contact our residential conveyancing team today by calling 0800 158 4147, emailing us at info@tayntons.co.uk or requesting a call back.