When the time comes to sell your property, there are a few new terms which you may have to learn.
A common example is ‘peppercorn ground rent’. Read this blog to find out what it means.
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 legally 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 thus 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 common where long leases exist, perhaps because the lease has not been updated to reflect inflation. When you buy a property, you should check to see whether peppercorn ground rent applies.
Do I actually have to give my freeholder a peppercorn?
Not really. The idea of ‘peppercorn’ ground rent is that it’s symbolic. It makes your contract legally binding, but demonstrates that your freeholder doesn’t have interest in collecting much money for ground rent. You thus don’t really need to give them a peppercorn. Check with them if you’re unsure.
Where does the name ‘peppercorn ground rent’ come from?
In the 16th and 17th century, renters would sometimes pay one peppercorn 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. There are two ways of doing this.
Collective enfranchisement
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 freehold, they can implement a peppercorn ground rent and extend the lease to 999 years.
Lease extension negotiations
Another way this situation can come about, is if a leaseholder wishes to extend their lease. They are entitled in the UK 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.
Is Peppercorn ever used for rental properties?
Sometimes, although this is rare. Ground rent doesn’t apply to rental properties. The tenant will simply pay an all-encompassing monthly fee to live there.
A landlord may charge a peppercorn if they’re doing their tenant a favour.
This means that they don’t want their renter’s money and are happy for them to stay there for free. This is very rare though, as the property will be very unprofitable for the landlord.
Will peppercorn ground rent still be used in the future?
Many experts in the UK think yes. The government is currently changing laws to give leaseholders more power.
This is expected to involve reducing ground rent payments to a ‘peppercorn’, so there aren’t substantial payments being made for this.