What is peppercorn ground rent?
Selling a house is one of the most stressful experiences a person will go through during their life. With so much to consider, the last thing you need is unexpected curveballs. But when it comes to selling a property affected by peppercorn ground rent, there are a few clauses you will need to get your head around.
In this article, we will be looking at everything you need to know about peppercorn ground rent, how to change ground rent to a peppercorn rent, and how we can help you sell your home with ground rent.
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How does peppercorn rent work?
Before we take a closer look at how peppercorn ground rent works, we will first take a quick look at how ground rent works. Exactly how much ground rent you will be required to pay will depend upon your property type as well as its location. But if you are a leasehold property owner then you can expect to pay anywhere between £300 to £700 ground rent per annum.
It is not uncommon for ground rents to be set for the entire lease, however, some modern leases can include escalating ground rentals. This allows the freeholder to raise the rent paid by a certain amount and at a specific time frame, usually in line with inflation.
Peppercorn ground rents often occur when older leases have not been adjusted in line with inflation, and the amount required for collection can be so small, that freeholders will not bother to collect it. These 'peppercorns' can be as small as £1-£10, and there is usually no intention of these being paid. This will mean that the leaseholder will pay zero ground rent.
Who owns the land and what is a lease?
Whether or not peppercorn and ground rents are an issue you will have to deal with depend upon whether you have a leasehold or freehold property. If you are the freeholder, then you will own the freehold title to the property which will mean they also own the land that the property is built upon. If you own a leasehold property, then you will own the property, but not the land that it is situated upon. Furthermore, you will only own the property for a set amount of time.
What is the difference between ground rent and peppercorn rent?
The only difference between peppercorn rent and ground rent is the amount that they cost. If the total rent is considered minimal, then they will be token or nominal rents. Ground rents, on the other hand, can be much higher. If they are modern, then they should be roughly 0.1% of the properties value, however, there are many properties with a £250 per annum ground rent as standard.
Where does the name ‘peppercorn ground rent’ come from?
Whilst it may sound unbelievable, the term originated from the edible kind of peppercorn. As we have already discussed, the term peppercorn is used to describe ground rent that is incredibly low but is still payable to the freeholder. It is believed to have originated from the 16th/17th century when a peppercorn was viewed as a valuable spice and the lowest form of rent that could be requested whilst still counting as a payment.
Why would a freeholder ask for peppercorns instead of money?
They would ask for one peppercorn per year as during this time, as peppercorns were a valuable spice during this time period. It was to symbolise that there was rent to be paid but it was so low that there was no point in taking it. Peppercorns were not the only form of rent that was requested, as some leases took payment in the form of a single red rose or a bouquet of poesies.
How much is a peppercorn rent meaning?
Whilst the exact amount you will pay depends upon your lease and property, you can expect to pay more than a peppercorn. The standard rate of peppercorn can be anywhere from £1 per year to £10 per year.
Can Ground Rent be changed to Peppercorn?
Technically yes. But it will not happen until the leaseholder decides to extend or vary the lease. According to the Leasehold Reform, Housing and Urban Development Act 1993, leaseholders can obtain a long lease extension of 90 years and be entitled to a peppercorn ground rent if they have lived in the property for two or more years. However, it is worth keeping in mind that leasehold extension can work out to be extremely expensive, and ranges into the tens of thousands, Because of this, it may not always be a viable option for leaseholders who are seeking to reduce their ground rent payments.
Alternatively, you can change your ground rent to peppercorn through collective enfranchisement. If within a property all leaseholders band together in order to purchase the freeholders then they will be able to extend their lease to 999 years and implement a peppercorn ground rent.
What is Section 167 of the Commonhold and leasehold reform Act?
The Commonhold and Leasehold Reform Act 2002 is an Act of Parliament of the United Kingdom. Similar to the Australian strata title or American condominium, it introduced commonhold into English and Welsh Law. It is divided into two parts, the first of which deals with commonhold and the second which deals with leasehold reform.
Section 167 of the Commonhold and Leasehold Reform Act prevented landlords under a long lease of dwelling from exercising the right to re-entry or forfeiture for failure to pay an amount consisting of service charges, administration charges, ground rent or a combination of them. This is unless the unpaid total exceeds the prescribed sum or consists of an amount that has been payable for more than a prescribed period.
According to regulations, this sum of £350 and a period of three years.
This act gave more freedom and protection to tenants who were at the mercy of their landlords when it came to ground rents and peppercorn rents.
Why pay peppercorn rent?
Whilst peppercorn rent may feel like a redundant charge to pay, it is more important than you may have originally realised. In order for a contract to be legally binding, there must be 'consideration' provided by each side (landlord and tenant), even if there is no intention for this rent to be paid.
How does the Leasehold Reform Act 2022 affect homeowners?
An issue that has come to the forefront over the past few years is high and escalating ground rents. It is especially prevalent where the conditions are met to class leases as ASTs under the 1988 Housing Act. In response to this issue, the government introduced the Leasehold Reform Act 2022 which came into action on 30 June 2022. It helps to prevent doubling or escalating ground rents and protect leaseholders from exploitation.
The act essentially abolished ground rent and turned them into peppercorns. As such, Landlords will be forbidden from charging a 'prohibited rent' which is anything in excess of £1. If they do, they will be required to refund the sum within 28 days The legislation will only cover new leases, meaning existing ones will remain unaffected.
In order for the Leasehold Reform Act to apply to your regulated lease, it must meet one of the following standards:
The lease was granted for a premium
The lease was granted after the relevant commencement day
The lease is not an "excepted lease"
It is a long lease of a single dwelling (ie longer than 21 years)
Looking to sell with peppercorn ground rent?
Are you looking to sell a property that is affected by peppercorn ground rent? Then you have come to the right place. Here at The Property Buying Company, we buy any property, in any location, regardless of condition.
As a genuine cash buyer, we specialise in fast house sales, done in a timescale that suits you. Whether you want to sell in 3 months or seven days from now, we tailor our service to you. It's just one of the ways that we make selling easy.
In order to confirm that our initial cash offer is correct, we may require one quick viewing from one of our regional managers. Once you have accepted our offer, that is the amount you will get in FULL in your bank.
And as an extra thank you for choosing us, we will cover all of the fees you would typically associate with selling a house - even the legal ones!
We are proud members of The Property Ombudsman and National Association of Property Buyers, as well as being rated as excellent on TrustPilot.
Are you ready to put your days of peppercorn ground rent behind you? Then get in touch today or fill in one of your online valuation forms now to receive a no-obligation CASH offer which we could have in your bank in as little as 7 days...