If you own a flat, then the lease will stipulate that the leaseholder will have to pay the freeholder a ground rent every year. In some leases, ground rent will not actually be payable. However, for the lease to be legally binding, some level of ground rent must be stipulated in the lease. In these cases, the ground rent will usually be “one peppercorn per annum”. This is such a small amount that the freeholder does not demand the ground rent in practice. Although we do like the image of a leaseholder going into their freeholder’s office with a large pepper grinder and sprinkling their arrears of peppercorn ground rent onto their freeholder’s desk.
Sometimes such an arrangement is taken literally. We have heard a story that the leaseholder of the Old State House in St George’s, Bermuda presents a single peppercorn on a velvet cushion upon a silver platter to the Governor of Bermuda every year in an official ceremony. We have also heard that the University of Bath present a peppercorn to the Chairman of the local Council every year as payment of their rent in a spirit of goodwill.
Sometimes, a peppercorn rent is given another name. We have heard that some leasehold properties in Covent Garden have leases which specify that they must pay “one red apple and a posy of flowers” as an annual ground rent. A National Coastwatch station is also apparently under an obligation to pay a ground rent of “one crab per annum, if demanded” to its landlord.
Near our Camberwell Office, there is a local development called Pilgrims Cloisters, which is a Grade II Listed former Almshouses originally built for “aged Pilgrims” but which now houses City workers. The leases for these flats stipulate an annual ground rent of “a single red rose”. We like the idea of the leaseholders all walking to the freeholder’s office once a year in order to each present the delighted freeholder with a red rose. Alas, that probably does not happen in practice. Like a peppercorn rent, the single red rose ground rent is just a nominal ground rent which is not usually demanded in practice. Pilgrim’s Cloisters is also a share of freehold in that the leaseholders in addition to owning their flats, also jointly own the freehold of the building by way of owning shares in the management company who own the freehold title. So the leaseholders would in effect be paying ground rent to themselves. Although we like the idea of the leaseholders giving flowers to each other every year at their Annual General Meeting. That would indeed be a very nice way to run a management company.
An advantage of owning a flat which has a share of freehold is that you can extend the lease to 999 years. As ground rent provisions in a lease become irrelevant once you buy your freehold (why pay ground rent to yourself?), at the same time as extending your lease you can formally reduce the ground rent to a peppercorn (or a single red rose if you’re more botanically inclined).
If you have a share of freehold flat and you have a short lease, it is a good idea to deal with this before you come to sell in order to avoid any delays if you have to deal with this as part of your sale. A buyer’s solicitors will usually ask for the lease to be extended as part of a sale if the remaining term of the lease is short and the seller has a share of freehold. This would particularly be the case if the buyer has a lender as most lenders will not lend on short leases. Lenders have different specific criteria, requiring different minimum terms. Some lenders require an unexpired term of 85 years and then the shorter the length of the lease, the fewer the amount of lenders who would be available to lend. A lease extension can be dealt with at the same time as the sale is running but has the potential to incur delays if, for example, it is difficult to get hold of one of the co-freeholders to sign documentation. Another option is to instruct us early on (such as when you’re about to put the property on the market) and we could start work on the lease extension in preparation for you finding a buyer.
If you would like your lease extended or if you are planning to sell a share of freehold flat which currently has a short lease, please contact us on 020 7703 5034 or firstname.lastname@example.org.
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