Ground Rent and Leasehold

A quick research into any terminology can give you basic information. Looking at it in context is something else entirely. Most of the time, it provides a clearer explanation of what is going on.

When the leasehold scandal has started to gain a lot of attention worldwide, many seemed to be unfamiliar with it. News outlets report the scenario in the United Kingdom particularly. One of the terms that often come to light is ground rent and how it basically ended up playing a key role in the issue.

What is ground rent?

In leasehold, this is what the lessee pays to the owner annually. This is different from the computed value of the property rented. The monthly due after the down payment is computed from the total property value. Ground rent is an annual fee that comes with the rent that is dependent on the land value.

How is ground rent determined?

When contracts for leasehold are negotiated, terms such as interest rates and increments per year are determined. Ground rent is one of these. This is more of a clause that owners have a control of. A basic idea is that ground rent changes every year with a certain rate. This has also been one of the selling points of leaseholds. Ground rent rates start off as a small percentage of what the property value is.

Why is it an issue?

The issue with ground rates that triggered a series of complaints among existing leasehold holders is the increase in the rates. This increase becomes crucial in what is known to be leasehold scandal because of how it seemed to noticeably double in a matter of years if assessed in long term computations. This may not have been much of an issue if the lease does not span decades.

Ground rent is like your share of dues for the land that your property stands on. This cost is relatively little compared to actual rent prices but when computed in terms of years, this cost accumulates to huge amounts.