What Is Peppercorn Ground Rent in the UK?

Can You Pay Ground Rent With Peppercorns in the UK?

Leaseholders in the UK pay ground rent to their landlord every year, but there is a term in the UK for this called peppercorn ground rent. Would a landlord really rather be paid in peppercorns than pounds? This article explains what peppercorn ground rent is in the UK, and how it came about.

An Insignificant Ground Rent — Peppercorn Rent

The Oxford Dictionary defines peppercorn rent as “a very low or nominal rent.” To understand this properly, you first need to know the difference between leasehold and freehold, in order to explore what ground rent is and why it exists.

Freehold and Leasehold in the UK

Properties in England and Wales are sold either as freehold or as leasehold. A freehold buyer has full ownership of the property and the land it sits on; a leasehold buyer does not own the land the property sits on — they only own the property for the period set out in their lease.

Who Owns the Land, and Who Signs the Lease?

The land belongs to the freehold owner. Anyone — whether a large investment company or a private individual — can own the land a property sits on. The freeholder grants a long lease over the property on their land for a fixed number of years, usually set at 99 or 125 years, though sometimes 999 years in certain cases. The leaseholder only has the right to use the property within that lease term. In addition, if the leaseholder wants to make any changes to the property, they must obtain the freeholder’s permission.

Selling a flat as leasehold and a house as freehold are the two most common arrangements, because a block of flats has shared areas that need maintaining. Because of this, a freeholder is typically responsible, on behalf of the leaseholders, for the building — and the freeholder will typically charge leaseholders a regular service charge to maintain the building.

The agreement between the freeholder (landlord) and the leaseholder sets out each side’s rights, responsibilities and obligations regarding the property. As the price of holding or using the property that sits on the land, the landlord will require the leaseholder to pay ground rent, which must be paid throughout the whole lease term set out in the lease.

Ground Rent Has No Fixed Charge — Why Does Peppercorn Ground Rent Exist?

This varies by property and location, but on average, a leaseholder pays around £300 a year in ground rent, sometimes as much as £700. Ground rent can be a fixed amount for the whole lease term, but many modern land leases include a rising ground rent. These provisions allow the freeholder to increase the ground rent by a specific amount within a specific timeframe, usually in line with inflation.

However, typically in older leases, the leaseholder pays much lower ground rent, because the lease terms have not been updated to reflect inflation. There are occasional exceptions, though, and it is still possible today to find newly built leasehold properties with similar terms. Sometimes the ground rent due under a lease can be very low — for example, £1 to £10 — to the point that some landlords do not even bother collecting it.

This is where peppercorn ground rent comes in. When the lease terms specify this, it means the leaseholder must give the freeholder one peppercorn (literally, an edible peppercorn) a year as the ground rent. In practice, this means the leaseholder pays zero ground rent. Odd as it sounds, this is a useful arrangement, and it is exactly why peppercorn ground rent exists.

Why Would a Landlord Ask for Peppercorns Instead of Money?

Historically, ground rent was often set very low, so, as noted above, a freeholder wouldn’t find much value in collecting it. So why don’t landlords simply set the ground rent to zero in the lease? This is because, for a leasehold agreement to be considered legally binding, each party must provide “consideration.” This means both sides must exchange something of value with each other.

In the past, peppercorns, like other spices, were a valuable commodity, so they were treated as sufficient consideration to confirm a leasehold agreement. That said, some leases require rather more unusual forms of ground rent, including a crab, a red rose, an apple or a bunch of flowers each year. It really depends on the freeholder’s imagination.

Requiring something to be handed over — whether peppercorns, a crab, or a pound coin — also helps prevent a leaseholder from making any claim to ownership of the land. This maintains the formal relationship between the two parties. But nowadays, the term “peppercorn ground rent” is more commonly used simply to mean a small or nominal amount.

Is It Possible for Ground Rent to Become Peppercorn?

Absolutely — but only if the leaseholder wants to extend or change their lease. Under the Leasehold Reform, Housing and Urban Development Act 1993, a leaseholder can obtain a 90-year lease extension. In addition, if they have lived in the property for two years or more, they are entitled to have the ground rent reduced to a peppercorn.

However, if the leaseholder extends the lease by negotiating directly with the freeholder, the ground rent amount they pay will also be open to negotiation. This means they would lose the right to a peppercorn ground rent. That said, this isn’t necessarily a bad thing for the leaseholder, since they may end up with a more economical deal overall.

Depending on the property’s value, location and remaining lease term, a single lease extension could cost a leaseholder tens of thousands of pounds. In addition, the shorter the remaining term, the more sharply the cost of extending the lease rises, partly because of marriage value. The worst-case scenario for a leaseholder is that, once the lease expires, the freeholder legally becomes the owner of the property.

For this reason, it makes sense for a leaseholder to extend their lease as early as possible. However, if a leaseholder does not have the funds available up front, they can also negotiate with the freeholder to accept a slightly higher ground rent in exchange for a lower extension premium, effectively spreading part of the one-off cost across the extended lease term. This can also be an ideal solution for any leaseholder who is selling their property, since it may save them thousands of pounds toward buying a new one.

When it comes to lease extensions, it is best to seek advice from a legal professional who specializes in property and conveyancing. They can help owners and freeholders fully understand their respective rights and obligations, supporting a more informed decision on both sides.

The Latest Update on Ground Rent

Under Section 166 of the Commonhold and Leasehold Reform Act 2002, a leaseholder does not need to pay any ground rent unless notice is given to them in the prescribed format. Conversely, if a leaseholder fails to pay ground rent after being lawfully requested to do so, the freeholder can start court proceedings to recover the debt. In extreme cases, the landlord can even start forfeiture proceedings.

In 2021, the UK’s Ministry of Housing, Communities & Local Government proposed a broader reform along these lines — extending residential leases by 990 years while exempting leaseholders from ground rent altogether, alongside a cap on ground rent to prevent excessive increases. What was actually enacted was narrower: the Leasehold Reform (Ground Rent) Act 2022, which took effect on 30 June 2022, bans more than a peppercorn ground rent on most new long residential leases, but does not itself introduce the 990-year extension or an online valuation calculator. In future, peppercorn ground rent may become even more widespread in the UK.

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Sources

UK Government – Leasehold Reform (Ground Rent) Bill: gov.uk/guidance/leasehold-reform-ground-rent-bill