Ground rent
Encyclopedia
Ground rent, sometimes known as a rentcharge, is a regular payment required under a lease
from the owner of leasehold property, payable to the freeholder
. A ground rent is created when a freehold piece of land or a building is sold on a long lease. The creation of a ground rent on land provided an income to the landowner, while the builder would lease the land to build the house and then sell it on completion. A building can be either sold as a single house or divided as flats.
Ground rent should not be confused with Chief Rent
(confusingly also known as a rentcharge) payable on some freehold property in North West England
,
, ground rent (solarium) was an annual rent
payable by the lessee of a superficies (a piece of land), or perpetual lease of building land.
In early Norman
England, tenants
were able to lease their title to land such that the land-owning lords did not have any power over the sub-tenant to collect taxes. In 1290 King Edward I passed the Statute of Quia Emptores
that prevented tenants from leasing their lands to others through subinfeudation
. This created a system of substitution, where the tenant's full interest would be transferred to the purchaser or donee, who would pay a rentcharge. This system later passed into common law
in England and was adopted by many nations which trace their legal heritage to Britain.
, it appears that the term "ground rent" was at one time popularly used for the houses and lands out of which ground rents issue, as well as for the rents themselves. Lord Eldon observed in 1815 that the context in which the term occurred may materially vary its meaning.
The contemporary accepted meaning of ground rent is the rent at which land is let for the purpose of improvement by building; i.e. a rent charged in respect of the land only, and not in respect of, the buildings to be placed thereon. It is therefore usually lower than the rent that might be achieved for a building let on the open market, and is for a far longer term of years (at least 21 years, but more commonly 99 years or 125 years, or even 999 years). However, inflation has eroded the value of most ground rents with long leases and non-rising incomes, so the value is now marginal where there is no prospect of a reversion
(when the ownership of the property reverts back to the freeholder) within 150 years.
The Commonhold and Leasehold Reform Act 2002
and the "The Landlord and Tenant (Notice of Rent) (England) Regulations 2004" now govern the form of notice that needs to be issued to collect ground rent. Previously there had been a problem with some landlords sending confusing or dishonest demands for payments to tenants.
The final sanction available to a landlord faced with a leaseholder in breach of his lease due to the failure to pay the service charges, ground rent or administration charges, is to forfeit the lease and to repossess the house or flat. To do this the landlord must first serve a valid notice under section 146 of the Law of Property Act 1925, the Notice of Seeking Possession. However, The landlord cannot serve a section 146 notice where the amount of service charges, administration charges or ground rent owed (or a combination of all of these) total less than £350, or have been outstanding for less than three years.
Under the provisions of The Rentcharges Act 1977, Lessees can free themselves of any annual rentcharge created before 22 August 1977, by applying to make a lump sum payment through the Department for Communities and Local Government (DCLG)following the closure of the Government Office for the North West in April 2011. Although many rent owners will try to make a private settlement with the rent payer, the Act provides a formula which enables DCLG to calculate the redemption figure that the rent payer has to pay the rent owner in order to redeem their rentcharge. When the transaction has been completed DCLG, on behalf of the Secretary of State
, issues a redemption certificate to the rent payer. Such rentcharges still in existence by 2037 will be extinguished.
Under the terms of a lease agreement, the freeholder (the outright owner of the land or property) grants permission for a leaseholder to take ownership of the property for a pre-defined period of time. This could range from 21 years to 999 years and during this time the leaseholder will pay ground rent to the freeholder. Freeholders lease property for the purpose of collecting ground rent for long term investment.
, the term ground rent is not employed, but its place is taken, for practical purposes, by the ground-annual, which bears a double meaning:
, either for initial income or for the opportunity of a reversion of the underlying property at some point in the future. The value of ground rents is affected by the rent review pattern on future income increases, the value of the underlying property, the unexpired lease length and whether marriage value is applicable.
Prior to selling ground rents it is a statuatory obligation incumbent on both parties to the transaction, that Section V notices are served on the long leaseholders. This gives them a two month period within which to respond. Upon expiry of the notices, a transaction can proceed at the price stated on the notice or higher (but not lower) for up to 12 months subsequently. The only way this can be avoided is for exchange of contracts on the ground rents sale of flats to have taken place prior to 50% of the flats being sold. This then allows completion upon sale of the last flats without the need for Section V notices.
ground rents have been a feature of urban life. While most tenancy reform legislation has been enacted for agricultural land (see Irish Land Acts
), urban occupiers / tenants have been allowed to "buy out" their ground rents from landlords, and so effectively change a long lease into a freehold interest, most recently under Acts of 1978 and 2005. Notably ground rents in Castlebar
, County Mayo
have been withheld following the controversial disappearance of Lord Lucan
in 1974.
, but is applied in many U.S. states to a kind of tenure, created by a grant in fee simple, the grantor reserving to himself and his heirs a certain rent, which is the interest of the money value of the land. These ground rents are real estate
, and, in cases of intestacy
, go to the heir. They are rent services and not rent charges, the statute Quia Emptores
never having been in force in Pennsylvania, and are subject to all the incidents of such rents. The grantee of such a ground rent may mortgage, sell, or otherwise dispose of the grant as he pleases; and while the rent is paid the land cannot be sold or the value of the improvements lost. The person who owns the land can live on it or they can build a home that is sold to other people, while they charge the new owners ground rent, which means the new owners own the home, but not the land and the new home owners pay the land owner money for living on their land.
A ground rent being a freehold estate
, created by deed
and perpetual in duration, no presumption could, at common law
, arise from lapse of time, that it had been released. But, by statute (Act of 27th of April 1855, s. 7), a presumption of release or extinguishment
is created where no payment, claim or demand has been made for the rent, nor any declaration or acknowledgment of its existence made or given by the owner of the premises subject to it, for the period of 21 years. Ground rents were formerly irredeemable after a certain time. But the creation of irredeemable ground rents is now forbidden (Pennsylvania Act 7 Assembly, 22nd of April 1850).
Ground rents are also found in some portions of Maryland
, primarily in the Baltimore
area. These are typically leases subject to a monthly or annual rent payment. Under Maryland law, if the renter does not pay, the ground owner can go to court and have a lien placed against the house. An emergency bill was presented by Democratic
Maryland Governor Martin O'Malley
to completely ban new ground rents in Maryland in 2007; the bill was passed by the legislature, though it is being contested in court. Victor Posner
began his career in Baltimore in the business of building house shells for Blacks on property retained under ground rents.
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
from the owner of leasehold property, payable to the freeholder
Fee simple
In English law, a fee simple is an estate in land, a form of freehold ownership. It is the most common way that real estate is owned in common law countries, and is ordinarily the most complete ownership interest that can be had in real property short of allodial title, which is often reserved...
. A ground rent is created when a freehold piece of land or a building is sold on a long lease. The creation of a ground rent on land provided an income to the landowner, while the builder would lease the land to build the house and then sell it on completion. A building can be either sold as a single house or divided as flats.
Ground rent should not be confused with Chief Rent
Chief Rent
Chief Rent also known as a rentcharge is an annual sum payable on some freehold property common in North West England, but found throughout the UK....
(confusingly also known as a rentcharge) payable on some freehold property in North West England
North West England
North West England, informally known as The North West, is one of the nine official regions of England.North West England had a 2006 estimated population of 6,853,201 the third most populated region after London and the South East...
,
History
In Roman lawRoman law
Roman law is the legal system of ancient Rome, and the legal developments which occurred before the 7th century AD — when the Roman–Byzantine state adopted Greek as the language of government. The development of Roman law comprises more than a thousand years of jurisprudence — from the Twelve...
, ground rent (solarium) was an annual rent
Renting
Renting is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from landowners...
payable by the lessee of a superficies (a piece of land), or perpetual lease of building land.
In early Norman
Normans
The Normans were the people who gave their name to Normandy, a region in northern France. They were descended from Norse Viking conquerors of the territory and the native population of Frankish and Gallo-Roman stock...
England, tenants
Land tenure
Land tenure is the name given, particularly in common law systems, to the legal regime in which land is owned by an individual, who is said to "hold" the land . The sovereign monarch, known as The Crown, held land in its own right. All private owners are either its tenants or sub-tenants...
were able to lease their title to land such that the land-owning lords did not have any power over the sub-tenant to collect taxes. In 1290 King Edward I passed the Statute of Quia Emptores
Quia Emptores
Quia Emptores of 1290 was a statute passed by Edward I of England that prevented tenants from alienating their lands to others by subinfeudation, instead requiring all tenants wishing to alienate their land to do so by substitution...
that prevented tenants from leasing their lands to others through subinfeudation
Subinfeudation
In English law, subinfeudation is the practice by which tenants, holding land under the king or other superior lord, carved out new and distinct tenures in their turn by sub-letting or alienating a part of their lands....
. This created a system of substitution, where the tenant's full interest would be transferred to the purchaser or donee, who would pay a rentcharge. This system later passed into common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
in England and was adopted by many nations which trace their legal heritage to Britain.
Valuation
The value of the freehold interest comprises:- A multiple of the current annual ground rent payable, which will depend on
- the outstanding term of the lease
- any future increases in the level of ground rent
- market interest rates
- the probability of default
- The net present value of the reversion, i.e. at the end of the lease the freeholderFee simpleIn English law, a fee simple is an estate in land, a form of freehold ownership. It is the most common way that real estate is owned in common law countries, and is ordinarily the most complete ownership interest that can be had in real property short of allodial title, which is often reserved...
(the person to whom the rent is paid) will probably be fully entitled to the property, so the shorter the lease the greater the reversion value. - Any attributable "marriage value" (a substantial sum designed to compensate freeholders for their loss of interest when a lease with less than 80 years to run is extended).
United Kingdom
In the United Kingdom, the rights of residential tenants' owning property subject to a long lease at a ground rent are governed by the Leasehold Reform Act 1967 for houses and the Leasehold Reform, Housing and Urban Development Act 1993 for flats.English
In English lawEnglish law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...
, it appears that the term "ground rent" was at one time popularly used for the houses and lands out of which ground rents issue, as well as for the rents themselves. Lord Eldon observed in 1815 that the context in which the term occurred may materially vary its meaning.
The contemporary accepted meaning of ground rent is the rent at which land is let for the purpose of improvement by building; i.e. a rent charged in respect of the land only, and not in respect of, the buildings to be placed thereon. It is therefore usually lower than the rent that might be achieved for a building let on the open market, and is for a far longer term of years (at least 21 years, but more commonly 99 years or 125 years, or even 999 years). However, inflation has eroded the value of most ground rents with long leases and non-rising incomes, so the value is now marginal where there is no prospect of a reversion
Reversion (law)
A reversion is a type of "remainder" interest created when incomplete ownership in property is alienated subject to a condition subsequent. Upon the fulfillment of the condition subsequent, the incomplete possessory rights cease to exist and exclusive ownership returns to the holder of the...
(when the ownership of the property reverts back to the freeholder) within 150 years.
The Commonhold and Leasehold Reform Act 2002
Commonhold and Leasehold Reform Act 2002
The Commonhold and Leasehold Reform Act 2002 is an Act of the Parliament of the United Kingdom. It introduced commonholds, a new way of owning land similar to condominiums, into English and Welsh law.-External links:...
and the "The Landlord and Tenant (Notice of Rent) (England) Regulations 2004" now govern the form of notice that needs to be issued to collect ground rent. Previously there had been a problem with some landlords sending confusing or dishonest demands for payments to tenants.
The final sanction available to a landlord faced with a leaseholder in breach of his lease due to the failure to pay the service charges, ground rent or administration charges, is to forfeit the lease and to repossess the house or flat. To do this the landlord must first serve a valid notice under section 146 of the Law of Property Act 1925, the Notice of Seeking Possession. However, The landlord cannot serve a section 146 notice where the amount of service charges, administration charges or ground rent owed (or a combination of all of these) total less than £350, or have been outstanding for less than three years.
Under the provisions of The Rentcharges Act 1977, Lessees can free themselves of any annual rentcharge created before 22 August 1977, by applying to make a lump sum payment through the Department for Communities and Local Government (DCLG)following the closure of the Government Office for the North West in April 2011. Although many rent owners will try to make a private settlement with the rent payer, the Act provides a formula which enables DCLG to calculate the redemption figure that the rent payer has to pay the rent owner in order to redeem their rentcharge. When the transaction has been completed DCLG, on behalf of the Secretary of State
Secretary of State
Secretary of State or State Secretary is a commonly used title for a senior or mid-level post in governments around the world. The role varies between countries, and in some cases there are multiple Secretaries of State in the Government....
, issues a redemption certificate to the rent payer. Such rentcharges still in existence by 2037 will be extinguished.
Under the terms of a lease agreement, the freeholder (the outright owner of the land or property) grants permission for a leaseholder to take ownership of the property for a pre-defined period of time. This could range from 21 years to 999 years and during this time the leaseholder will pay ground rent to the freeholder. Freeholders lease property for the purpose of collecting ground rent for long term investment.
Scottish
In Scots lawScots law
Scots law is the legal system of Scotland. It is considered a hybrid or mixed legal system as it traces its roots to a number of different historical sources. With English law and Northern Irish law it forms the legal system of the United Kingdom; it shares with the two other systems some...
, the term ground rent is not employed, but its place is taken, for practical purposes, by the ground-annual, which bears a double meaning:
- 1/ At the time of the ReformationScottish ReformationThe Scottish Reformation was Scotland's formal break with the Papacy in 1560, and the events surrounding this. It was part of the wider European Protestant Reformation; and in Scotland's case culminated ecclesiastically in the re-establishment of the church along Reformed lines, and politically in...
in ScotlandScotlandScotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...
, the lands of the ChurchRoman Catholic ChurchThe Catholic Church, also known as the Roman Catholic Church, is the world's largest Christian church, with over a billion members. Led by the Pope, it defines its mission as spreading the gospel of Jesus Christ, administering the sacraments and exercising charity...
were parcelled out by the crown into various lordships, the grantees being called "Lords of Erection". In the 17th century these Lords of Erection resigned their superiorities to the crown, with the exception of the feu-duties, which were to be retained till a price agreed upon for their redemption had been paid. This reserved power of redemption was, however, resigned by the crown on the eve of the Union and the feu-duties became payable in perpetuity to the Lords of Erection as a ground-annual. - 2/ Speculators in building ground usually grant sub-feus to builders at a high feu-duty. But where sub-feus are prohibited—as they might have been prior to the Conveyancing (Scotland) Act 1874—and there is much demand for building ground, the feuars frequently stipulate that the builder pay an annual rent rather than purchase the land outright. This annual rent is called a ground-annual. Interest is not due on arrears of ground-annuals and, like other real burdens, ground-annuals may now be freely assignedAssignment (law)An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee...
and conveyedConveyancingIn law, conveyancing is the transfer of legal title of property from one person to another, or the granting of an encumbrance such as a mortgage or a lien....
.
Sale of ground rents in the UK
There are a number of companies which specialise in buying ground rents for long term investment from landlords who want to sell their ground rents. Normally they focus on purchasing reversionary ground rentsReversion (law)
A reversion is a type of "remainder" interest created when incomplete ownership in property is alienated subject to a condition subsequent. Upon the fulfillment of the condition subsequent, the incomplete possessory rights cease to exist and exclusive ownership returns to the holder of the...
, either for initial income or for the opportunity of a reversion of the underlying property at some point in the future. The value of ground rents is affected by the rent review pattern on future income increases, the value of the underlying property, the unexpired lease length and whether marriage value is applicable.
Prior to selling ground rents it is a statuatory obligation incumbent on both parties to the transaction, that Section V notices are served on the long leaseholders. This gives them a two month period within which to respond. Upon expiry of the notices, a transaction can proceed at the price stated on the notice or higher (but not lower) for up to 12 months subsequently. The only way this can be avoided is for exchange of contracts on the ground rents sale of flats to have taken place prior to 50% of the flats being sold. This then allows completion upon sale of the last flats without the need for Section V notices.
Ireland
In the Republic of IrelandRepublic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
ground rents have been a feature of urban life. While most tenancy reform legislation has been enacted for agricultural land (see Irish Land Acts
Irish Land Acts
The Land Acts were a series of measures to deal with the question of peasant proprietorship of land in Ireland in the nineteenth and twentieth centuries. Five such acts were introduced by the government of the United Kingdom between 1870 and 1909...
), urban occupiers / tenants have been allowed to "buy out" their ground rents from landlords, and so effectively change a long lease into a freehold interest, most recently under Acts of 1978 and 2005. Notably ground rents in Castlebar
Castlebar
Castlebar is the county town of, and at the centre of, County Mayo in Ireland. It is Mayo's largest town by population. The town's population exploded in the late 1990s, increasing by one-third in just six years, though this massive growth has slowed down greatly in recent years...
, County Mayo
County Mayo
County Mayo is a county in Ireland. It is located in the West Region and is also part of the province of Connacht. It is named after the village of Mayo, which is now generally known as Mayo Abbey. Mayo County Council is the local authority for the county. The population of the county is 130,552...
have been withheld following the controversial disappearance of Lord Lucan
Richard Bingham, 7th Earl of Lucan
Richard John Bingham, 7th Earl of Lucan , popularly known as Lord Lucan, as Lord Bingham before 1964, and sometimes colloquially called "Lucky" Lucan, was a British peer, who disappeared in the early hours of 8 November 1974, following the murder of Sandra Rivett, his children's nanny, the previous...
in 1974.
United States of America
The term ground rent in the English sense does not seem to be generally used in the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, but is applied in many U.S. states to a kind of tenure, created by a grant in fee simple, the grantor reserving to himself and his heirs a certain rent, which is the interest of the money value of the land. These ground rents are real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, and, in cases of intestacy
Intestacy
Intestacy is the condition of the estate of a person who dies owning property greater than the sum of their enforceable debts and funeral expenses without having made a valid will or other binding declaration; alternatively where such a will or declaration has been made, but only applies to part of...
, go to the heir. They are rent services and not rent charges, the statute Quia Emptores
Quia Emptores
Quia Emptores of 1290 was a statute passed by Edward I of England that prevented tenants from alienating their lands to others by subinfeudation, instead requiring all tenants wishing to alienate their land to do so by substitution...
never having been in force in Pennsylvania, and are subject to all the incidents of such rents. The grantee of such a ground rent may mortgage, sell, or otherwise dispose of the grant as he pleases; and while the rent is paid the land cannot be sold or the value of the improvements lost. The person who owns the land can live on it or they can build a home that is sold to other people, while they charge the new owners ground rent, which means the new owners own the home, but not the land and the new home owners pay the land owner money for living on their land.
A ground rent being a freehold estate
Estate in land
An estate in land is an interest in real property that is or may become possessory.This should be distinguished from an "estate" as used in reference to an area of land, and "estate" as used to refer to property in general....
, created by deed
Deed
A deed is any legal instrument in writing which passes, or affirms or confirms something which passes, an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions sealed...
and perpetual in duration, no presumption could, at common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
, arise from lapse of time, that it had been released. But, by statute (Act of 27th of April 1855, s. 7), a presumption of release or extinguishment
Extinguishment
Extinguishment is the destruction of a right or contract. If the subject of the contract is destroyed , then the contract may be made void. Extinguishment occurs in a variety of contracts, such as land contracts , debts, rents, and right of ways...
is created where no payment, claim or demand has been made for the rent, nor any declaration or acknowledgment of its existence made or given by the owner of the premises subject to it, for the period of 21 years. Ground rents were formerly irredeemable after a certain time. But the creation of irredeemable ground rents is now forbidden (Pennsylvania Act 7 Assembly, 22nd of April 1850).
Ground rents are also found in some portions of Maryland
Maryland
Maryland is a U.S. state located in the Mid Atlantic region of the United States, bordering Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware to its east...
, primarily in the Baltimore
Baltimore
Baltimore is the largest independent city in the United States and the largest city and cultural center of the US state of Maryland. The city is located in central Maryland along the tidal portion of the Patapsco River, an arm of the Chesapeake Bay. Baltimore is sometimes referred to as Baltimore...
area. These are typically leases subject to a monthly or annual rent payment. Under Maryland law, if the renter does not pay, the ground owner can go to court and have a lien placed against the house. An emergency bill was presented by Democratic
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
Maryland Governor Martin O'Malley
Martin O'Malley
Martin Joseph O'Malley is an American Democratic politician who is currently serving as the 61st Governor of Maryland. Previously, he served as the mayor of Baltimore from 1999 to 2007. He is currently the chairman of the Democratic Governors Association.-Early life, education and career:O'Malley...
to completely ban new ground rents in Maryland in 2007; the bill was passed by the legislature, though it is being contested in court. Victor Posner
Victor Posner
Victor Posner was an American businessman. He was known as one of the highest paid business executives of his generation. He was a pioneer of the leveraged buyout.-Career:...
began his career in Baltimore in the business of building house shells for Blacks on property retained under ground rents.
External links
- Special Baltimore Sun Series on Ground Rent and Changes Prompted by the Series in Baltimore City
- UK Rentcharges Act 1977 at propertylawuk.net
- The Leasehold Advisory Service UK: Service charges and other issues
- "Ground Rents - An explanation" from Landlordzone
- "Primelocation Ground Rent Guide"
- "The Landlord and Tenant (Notice of Rent) (England) Regulations 2004"