Ground rent was once treated as a small annual payment that barely deserved a line in the household budget. Some modern and older leases contain increases that make it much more important.

A difficult ground-rent clause can affect the premium for a lease extension, the attractiveness of an informal offer and, in some cases, whether a mortgage lender will accept the flat.

What Ground Rent Is

Ground rent is a payment due to the landlord under the lease. It is separate from the service charge, which covers the building's management, maintenance and shared services.

The amount and review pattern are contractual. The landlord cannot simply increase it whenever they wish, but the lease may already provide for scheduled rises.

Common Review Patterns

• A fixed amount for the entire term.

• Stepped increases on stated dates.

• Doubling every ten, fifteen or twenty years.

• Changes linked to the Retail Prices Index or another index.

• A percentage of the property value or another formula.

Why Lenders May Object

Lenders consider whether lease obligations could affect value, affordability or the ability to sell the flat. A rent that becomes unusually high relative to the property value may be treated as onerous.

There is no universal lender rule. Policies change and individual cases differ. Buyers should ask their conveyancer to check both the present rent and its future increases against the proposed lender's current handbook requirements.

A seller should not assume that a modest rent today is harmless if it is due to double several times during the mortgage.

How Ground Rent Affects the Extension Premium

A statutory lease extension currently reduces the ground rent to a peppercorn for the extended lease. The landlord is giving up the right to receive the future rent, and the value of that loss forms part of the premium.

Higher and increasing rents can therefore increase the extension price. The exact effect requires a valuation using the wording of the lease, not merely the latest annual amount.

The Informal Extension Risk

An informal proposal may leave the current rent in place, increase it or create a new review pattern. The premium may look cheaper because the landlord retains a valuable income stream.

That can be a poor exchange if the new clause reduces mortgageability or leads to substantial payments over the years. Every informal deal should be compared with the statutory baseline of 90 additional years and a peppercorn rent under current law.

Do the 2022 Ground-Rent Rules Help?

The Leasehold Reform (Ground Rent) Act 2022 generally prevents financial ground rent in most new long residential leases granted after the relevant commencement dates. It did not automatically remove ground rent from older existing leases.

Government proposals announced in 2026 would cap many existing ground rents at £250 a year and move them to a peppercorn after 40 years, but those proposals are not yet law as of July 2026.

Can the Lease Be Varied Without a Full Extension?

Sometimes a landlord will agree to vary an onerous clause. The leaseholder may pay a premium and legal costs, and the lender may need to approve the deed of variation.

A variation may solve a mortgage issue without adding years, but it should be compared with the cost and benefits of a full statutory extension. Paying to fix the ground rent now and extending a short lease later could mean two transactions instead of one.

What to Check Before Buying

• The current annual ground rent.

• Every future review date.

• The formula used for increases.

• The highest rent during the proposed mortgage term.

• The lease length and likely extension timing.

• The lender's current criteria.

• Whether the seller has agreed a variation or extension.

Why This Matters in South London

South London flats entering the lease danger zone may combine two issues: a shortening term and an unattractive ground-rent clause. Owners should deal with both in the same valuation and legal strategy rather than focusing only on the number of years remaining.

Read next: https://thelondonmedia.co.uk/the-south-london-lease-extension-timebomb/