This article discusses the benefits of leasehold extension or lease ‘enfranchisement’. If your lease is about to drop below 80 years remaining or you generally want to extend for your future security, then read ahead.
The papers and forms to sign are piling up on your desk and you start to worry. All the muddling rents you will have to pay on your lease, what do they mean?
Ground Rent, chief rent, nominal rent, even a peppercorn rent (!). Thoughts of service charges and panic follow: ‘have I been paying all those rents in past years? I thought the nightmare of paying rent disappeared when buying and extending a lease?’
Panic not. Soon you will be able to face that stack of papers, go ahead and extend the lease, with a smile.
So, starting with Selling ground rents. Don’t get fooled! Ground rent, nominal rent and peppercorn rent all refer to the same thing: the amount rent you pay for the ground itself upon which your property is situated. As a leaseholder you rent a portion of ground from the freeholder. This is normally around 100 to 250 and this is normally paid in whole once a year.
But why is it so low? No, it’s not because it’s for mowing and tending to the garden (service charges). In order to enforce the terms of a lease a ground rent must be set. Many a Ground rent sale has tiny ground rents as the price was set hundreds of years ago without change. Freeholders, in those days, stipulated that the rent should be a peppercorn (as used in pepper grinders) to save them the trouble of collecting the Ground Rent valuation money.
In theory the freeholder could still demand the peppercorn but in effect it means there’s no ground rent to pay. And this is one advantage which extending a lease can provide: your ground rent drops to zero (or a peppercorn!).
Can you feel the air calming now that you know more before you extend your lease? Yes, but sometimes the term ‘chief rent’ is used, which many people mistakenly refer to as ground rent. Relax: this term is only relevant if you are purchasing a property in North West England, otherwise you can forget about it.
You turn to the now not-so-scary stack of papers…but there’s still that nagging worry: service charges. Nothing severe here either, but that’s another story, for another time.