Understanding Peppercorn Ground Rent

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Understanding Peppercorn Ground Rent
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When the time comes to sell your property, there are a few new terms which you may have to learn. Some of these are more commonly researched – such as ‘conveyancing’, ‘leasehold’ or ‘Japanese knotweed’.

Others, however, are not encountered in many house sales at all. These terms tend to be more peculiar – and ‘peppercorn ground rent’ is one of them.

In the blog below, we have provided a clear guide to peppercorn ground rent – including what it is, and how it might play into the transaction of a property.

What is peppercorn ground rent?

Peppercorn ground rent is ground rent which is particularly low. In most instances, this figure will be less than £10 per year – and for this reason, it is common for landlords to not bother chasing up the ground rent at all.

Peppercorn ground rent exists because it is required on a lease that there is ground rent paid. This is one of three criteria for a lease, along with an insurance premium and money towards maintenance.

In some instances, the ground rent for a property is extremely low, and therefore inconsequential. This is when a landlord may use peppercorn ground rent (an extremely low figure) to simply ‘box tick’ that a fee is being paid, so that a lease can be granted.

Peppercorn rents are notably common where long leases exist, perhaps because the lease has not been updated to reflect inflation.

Where does the name ‘peppercorn ground rent’ come from?

The term ‘peppercorn ground rent’ can be traced back through the history books. In the 16th and 17th century, renters would sometimes pay one peppercorn (yes, the edible kind) to their landlord as a form of payment. Other types of payment were accepted too, with flowers being a common alternative.

By the end of the following century, the term ‘peppercorn’ in the UK had become synonymous with anything which didn’t have much value.

Can Ground Rent be changed to Peppercorn?

Yes, it is possible for ground rent to be changed to peppercorn.

One way ground rent can be changed to peppercorn is through something known as ‘collective enfranchisement’. This phrase means that if all the leaseholders in a property come together to purchase the freeholder(s), they are permitted to implement a peppercorn ground rent and extend the lease to 999 years.

Another way this situation can come about, is if a leaseholder wishes to extend their lease – as they are entitled in the UK (according to the law) to do so by 90 years. If they have lived in the property for over two years, this lease extension is allowed to be peppercorn ground rent.

What is the Leasehold Reform Act 2022?

In June 2022, the UK government introduced the ‘Leasehold Reform Act 2022’. This act means that if a ground rent is demanded as part of a regulated new residential long lease, it cannot be for more than one peppercorn per year.

Landlords will also be banned from charging administration fees for collecting this.

The Act only applies to new leases granted (or under a contract in place before implementation) from 30 June 2022. 

The Leasehold Reform Act 2022 only applies to ‘regulated leases’. This means a lease which is: 

  • A long lease of a single dwelling (i.e. more than 21 years)
  • Not an “Excepted Lease”
  • Granted for a premium
  • Granted after the relevant commencement day (i.e. 30 June 2022)

It is important to do your research on this Act and consult legal and housing experts before making decisions on matters impacted by this Act.

Leasehold versus Freehold

Owning a property can often be complicated – but We Buy Any Home is here to help. Our webpage on leasehold versus freehold gives you clear direction on this challenging topic.

We have made it our mission at We Buy Any Home to help to cut through the technical terminology and help you to have a better understanding of all aspects of the property market. Click on the link above to understand the differences between a leasehold and freehold and what they mean for you and your home.

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Any location, any condition, we buy any house. We can provide you with an offer for your UK property – Cardiff to Clyde, Durham to Dover. Our specialist team have helped assist thousands of people to a quick and stress free house sale.

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