Understanding Peppercorn Ground Rent

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Understanding Peppercorn Ground Rent
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‘Peppercorn ground rent’ is a term encountered in only a few house sales.

In the blog below, we have provided a clear guide to what it is and its impact on property transactions.

What is peppercorn ground rent?

Peppercorn ground rent is particularly low ground rent (i.e., rent paid for the use of land, excluding buildings).

In most instances, this figure will be less than £10 per year. For this reason, landlords often do not bother chasing it up at all.

Peppercorn ground rent exists because it is one of the three criteria for a lease:

  • Ground rent
  • An insurance premium 
  • Money towards maintenance

A landlord may use peppercorn ground rent to simply ‘box tick’ that a fee is being paid so that a lease can be granted.

Peppercorn rents are notably expected where long leases exist. This might be because the lease has not been updated to reflect inflation.

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

The term’ peppercorn ground rent’ dates back to the 16th and 17th centuries.

Back then, renters sometimes paid their landlord for one peppercorn (yes, the edible kind) 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 of little value.

Can ground rent be changed to peppercorn?

Yes, ground rent can be changed to peppercorn. This can be done through something known as ‘collective enfranchisement’

This phrase means that if all the leaseholders in a property come together to purchase the freeholder, they can implement a peppercorn ground rent and extend the lease to 999 years.

Another way this situation can arise 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 can 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 ‘regulated leases’ granted (or under a contract in place before implementation) from 30 June 2022. These meet the following criteria:

  • 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 essential to research this Act and consult legal and housing experts before deciding on matters impacted by it.

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