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If you own a leasehold property then you will typically pay the freeholder owner of that house or flat an annual ground rent, and these can sometimes be very expensive. This guide explains why a high ground rent can complicate the sale of your property, and it also offers advice on how to improve your prospects for getting a competitive and speedy offer from a buyer.
- What is ground rent on a property in the UK?
- A recent scandal with the cost of ground rents
- Why a high ground rent can make a home harder to sell
- Should you buy the freehold of your property?
- How much Capital Gains tax will you pay when selling your home?
- Four ways to sell a house or flat with high ground rent
- Top questions about selling a home with high ground rent
What is ground rent on a property in the UK?
Properties in the UK are either freehold or leasehold, with freehold homes being those that you own outright, including the building and the land on which it was constructed. Leasehold properties, by contrast, are typically flats and similar homes where you will own an individual unit and pay an annual ground rent to the freeholder of the building in which it is located.
The amount of the ground rent that you’ll pay each year will be specified in the leasehold agreement that has been signed with the freeholder, which will also set out the other terms of the ownership, including the number of years that you will be the leaseholder. If you opt to not renew the lease when it expires then the ownership simply transfers back to the freeholder at that time.
Some leasehold agreements stipulate a "peppercorn" rent, which refers to a miniscule amount of ground rent that the freeholder charges, as the solicitors at Express Conveyancing explain.
If you buy a leasehold property from a local authority then the ground rent might only be about £50, but if you buy from a private freeholder then the amount could be much more.
Other ground rents can be very expensive, and it’s this type of property that is the focus of this guide. As detailed in the next section of this guide, because there are few restrictions on what freeholders can charge, ground rents for some properties can reach thousands of pounds.
A recent scandal with the cost of ground rents
In recent years, there has been a scandal across the UK as more and more stories are reported about homeowners unwittingly committing to lease agreements that have very high ground rents, as well as clauses that increase the ground rent by a large amount over several years.
This problem has occurred prominently with new build homes found throughout the country, as property law firm Manak Solicitors notes on its website.
In some examples, the ground rent could reach more than £10,000 by 2060 unless the government enacts some changes to what freeholders can charge their leaseholders. The next section of this guide explains how the current situation of having a high ground rent on your property can not only cause current owners financial problems but also make it harder to sell.
Why a high ground rent can make a home harder to sell
In a bid to help leaseholders, a UK charity called the Leasehold Knowledge Partnership has campaigned for new laws that could help to prevent freeholders from hiking their ground rents to very high levels.
But unless and until the government enacts such reforms, tens of thousands of homeowners may have no choice but to try and sell their property even with a high ground rent. And unfortunately the very existence of a high ground rent can be enough to make someone lose interest in making an offer on your home – even if it’s their dream property, they might simply not be able to afford to pay their mortgage, utilities and also the annual ground rent.
You will need to be open about the high ground rent on your house or flat when trying to sell it, and you should never hide this detail from potential buyers or mislead them about the amount they will have to pay. If you do so and someone then purchases the property, they could sue you for penalties after they become the owner and discover the high ground rent.
It’s possible that if you’re dealing with a private buyer that they might not be able to get a mortgage that would pay for the purchase of your home. This is because some mortgage lenders might be wary about approving a loan to buy a house or flat with a high ground rent, because the company could see it as potentially being hard to sell the home in the future. If the borrower defaults on their mortgage sand then the lender tries to sell the property to recoup the outstanding loan amount, they might struggle to find a buyer because of the high ground rent.
One solution to this problem is getting in touch with LDN Properties or another quick property buyer, because they have the funds available to immediately buy any type of leasehold or freehold property without having to first obtain a mortgage to cover the cost of the purchase.
Should you buy the freehold of your property?
One possible solution to having a high ground rent could be to offer to buy the freehold on the property, and once you’re the freeholder then the ground rent will no longer apply.
Although this might work for certain single properties, it can become complicated if you are trying to buy the freehold on a block of flats or a similar multi-unit property because many conditions apply to trying to buy the freehold. And you might also have a freeholder who is simply unwilling to sell their ownership, which would eliminate this option entirely.
Alternatively, if you have owned the leasehold on your home for at least two years then you have the right under a law known as The Leasehold Reform, Housing and Urban Development Act of 1993 to not only seek to extend the lease by up to 90 years (by serving what is known as a Section 42 notice) but also negotiate for a new, lower ground rent – and this can sometimes result in paying a peppercorn rent going forward. You can read more about selling your flat with a short lease in our complete guide.
If this is your situation then you could try asking your freeholder if they would be open to reducing the ground rent on your home before you try to find a buyer for it.
However, if you don’t qualify for renegotiating the ground rent, or you have a freeholder that refuses to lower the amount of ground rent that you must pay, then you will have to try selling the property "as is" with a high ground rent. The good news is that you are still able to get a fast and fair offer for your leasehold home if you sell to a quick buyer like LDN Properties, because these companies will not see your property as less valuable just because of the high ground rent.
How much Capital Gains tax will you pay when selling your home?
In certain situations, you might have to pay Capital Gains Tax when you sell your leasehold home with a high ground rent, and understanding your possible tax liability is an important part of the necessary process of developing a budget for the sale of your house or flat.
Capital Gains Tax is a charge that the government imposes on the amount of gain, also known just as the profit, that you might make when selling a house, flat or other type of property. If the tax applies then you will be typically required to pay it just on the profit.
It can be useful to consult with a financial professional to learn about your potential Capital Gains Tax liability, because there are certain situations in which you could reduce or eliminate your obligation to pay this charge.
Four ways to sell a house or flat with high ground rent
There are four leading methods that you can use to try and sell your property with a high ground rent – selling to a quick property buyer, selling on your own, selling with an estate agent or selling at a property auction. You will see from the details below that each method has its own perks, but some of the choices have significant cons that you should know about.v
For example, whilst selling on your own means you won’t have to pay any commission, it is also one of the slowest ways to find a buyer and perhaps the most stressful of the choices.
A simple way to find out which of the methods is the best fit for your unique needs is to write down the goals that you want to achieve with selling your property, such as how much you’re willing to pay in fees, your preferred sale price and how long you can wait to find a buyer. Then compare these details against the information about the four options below. This should help you narrow your choice down to the one that’s likeliest to help you achieve your targets.
Selling to a quick property buyer
Quick property buyers, like LDN Properties, are companies that have the financial ability to immediately purchase almost any type of freehold or leasehold home.
These companies do not need to initially wait for many weeks or even months to get approved for a mortgage that will help them cover the cost of buying your home. This significantly speeds up the selling process, and most genuine quick buyers should be able to finalise every step of purchasing your home in just a few short weeks. And this swift timeline includes the important steps of paying the seller their full proceeds and exchanging contracts.
Honest quick home buyers will also never charge sellers any commission, which can help you with reducing your overall selling expenses. But when you sell via an estate agent or auctioneer then you’ll have to pay them fees that will be taken out of the eventual sale proceeds. This can increase your overall selling costs, which can be a problem if you’re trying to cut expenses.
Quick buyers are also able to make fair and fast offers to buy homes regardless of their age, condition, location, shape or size, or any problems they may have, such as a high ground rent.
For example, LDN Properties’ long list of purchases that it has made across the UK since launching in 2003 includes not only homes with high ground rents, but flats with cladding, houses with solar panels, properties with old electrics or wiring, maisonettes, homes with short leases remaining, properties where the owner can’t find the title deeds, concrete construction homes, flats with elevated amounts of asbestos, properties located near to industrial estates, homes that do not have structural warranties, and many other scenarios.
If you decide to take the quick buyer up on their initial offer, they will next have one of their team members come to your home so that they can assess the interior and exterior before they make a final offer. This is the only such viewing that you will need to have if you decide to sell your home directly to a quick home buying company, which can be very favourable compared to selling via an estate agent where dozens of viewings might be necessary.
And if you then accept the quick buyer’s final offer, they will work swiftly with your solicitor to complete all of the required paperwork and finalise the purchase within a handful of weeks. It’s by far the most rapid way to sell a property typically, particularly those with a high ground rent.
Selling on your own
Selling on your own means that you have the sole responsibility for handling every step of the selling process, which begins with making a listing for your home that not only describes its main features but also includes photographs of the inside and outside. Next, you’ll have to advertise this listing in local newspapers and online in order to attract potential buyers. And you will need to schedule viewings where you can give people a tour of your property. Finally, you will have the responsibility of fielding offers from buyers, hopefully taking one to completion.
This is a major undertaking and it’s not work that you can defer to just your free time. That’s why this approach of selling is only suggested for people who have experience with finding buyers for properties, or that have a skilled friend or family member who can help out for free. If not, you could be looking at more than a year before you even get a serious offer from a buyer.
The only obvious benefit of selling on your own is that you will not be required to pay an auctioneer or estate agent any commission, which can help with reducing your selling costs. But this saving could be eliminated by other costs you’ll face, such as advertising for your listing.
One alternative approach is to sell your home to a genuine no-fee quick buyer like LDN Properties. These companies will never charge you a fee to purchase your property, but they’ll also be able to complete the transaction in just a few short weeks. So you would still get the benefit of paying no commission but with the added perk of a much speedier sale.
Selling with an estate agent
Estate agents will take on the bulk of the effort required for selling your home, including creating and advertising the listing, organising and leading viewings, and hearing offers from buyers. This can be beneficial to owners who are looking to do as little work as possible when selling.
But for doing all of this work, estate agents will charge commission, based on whatever sale price they’re able to get for your home. This fee will be subtracted immediately from the sale proceeds, which will add to your expenses. If your top aim with selling is reducing your costs then you may want to consider another selling method.
This is not always a very fast way to sell a home either, and you should be aware that it might be more than a year before you get a genuine offer. And remember that a buyer could withdraw their offer at any time up to just before the exchange of contracts, and not face any penalties. If this were to happen then it would require you to begin again with the process of trying to locate a buyer for your home with high ground rent, possibly adding many more months to the timeline.
Selling at a property auction
Another way to sell your home with a high ground rent is through a property auction, where you’ll choose a reserve price – the lowest value of which you can accept the sale of your house or flat – and then people will hopefully place bids of ever-increasing prices on your home.
It’s crucial that you select a reserve price that works for you, even after you have deducted the commission that the auctioneer may charge.
You may want to ask individual auctioneers whether they are open to charging you less commission when selling your home, or at least requiring that the winning high bidder pays for some of your auctioning costs, because this can help with reducing your expenses.
If you don’t get any bids on your home then it will be deemed unsold and you will have to start anew with the process of trying to find a buyer for the property. This can add much more time to the overall selling schedule, and there are no guarantees that your home will sell at an auction.
Selling through an auction is not the most rapid way to find a buyer, because it can take many months. After you enter your home for sale there will then be a delay of several weeks or months before the auction happens. And if the property does sell at the auction then the winning high bidder will have 28 days to complete their legal paperwork and other required steps.
It’s possible that some auctioneers might give the buyer more time than 28 days to finalise all of these steps, whereas others may set tighter deadlines. You can always try asking an auctioneer whether they might be open to giving the buyer less time to finish all of their tasks.
Top queries and answers about selling property with high ground rent
Homeowners wanting a quick house sale sometimes have questions to ask, ranging from the types of property we consider buying through to selling a flat with a short lease. Here are some of the top questions we’re asked about selling property with high ground rent:
Your top questions when selling property with high ground rent
In the UK, properties are either freehold, which means you own the property and the land on which it was built outright, or leasehold, which means that you own the home for a set number of years and then pay the freeholder of the property an annual ground rent. This charge is on top of whatever other costs the buyer might have, such as their mortgage payments.
The exact amount of ground rent will vary from home to home but there are some properties where the freeholder will only charge a peppercorn rent or a miniscule amount. Some local authorities will charge their leaseholders ground rents as low as £50 per year, whereas you might find private buyers that charge excessively high amounts of ground rent to buyers.
This is the revelation that many homeowners across the country have been caught up in lease agreements where they are being charged very large ground rents, and with conditions attached that allow the freeholder to keep raising the amount of ground rent. Left unchecked, this could result in some owners paying ground rents of more than £10,000 by 2060.
Because many buyers will be discouraged by the idea of having to pay a large amount of money each year for a property through ground rent, in addition to any mortgage payments, utility bills and other expenses. You might find also that some mortgage lenders won’t grant loans to buy homes with high ground rents because they may see the property as harder to resell.
You generally have four options to choose from, which are selling to a quick buyer, selling on your own, selling via an estate agent or selling at a property auction. There are unique advantages to each of these methods, but some also have rather notable drawbacks, for example if you sell on your own then it might take over a year to find a buyer.
Potentially, depending on which method you use for trying to find a buyer. When you’re selling via an estate agent or auction then you’ll have to pay commission based on your home’s sale price, but quick buyers and selling on your own don’t have any fees.
You should contact LDN Properties or another legitimate quick property buyer because they will be able to complete the purchase of your home within just a handful of weeks, and that includes the time needed to exchange contracts and pay you the proceeds. But selling through an auctioneer, estate agent or on your own can all take at minimum many months.
