Ground rent over £250 — why your lease may count as an assured tenancy

My ground rent is over £250 — why does that matter?

Because of a threshold in the Housing Act 1988 that has nothing to do with ground rent as such. A long lease with a ground rent over £250 a year outside London, or over £1,000 inside it, can be treated as an assured tenancy. The practical consequence is about forfeiture: for an assured tenancy, where at least three months’ rent has been more than three months overdue, the court loses the discretion it would otherwise have to grant relief. That is what lenders are reacting to, not the size of the bill.

From the e-ROT archive

This scenario is drawn from Report on Title material dealing with this specific circumstance.

Lexsure master Report on Title paragraph: Ground Rent likely to increase to over £250 · See the wording

Why £250 is the number

Long leases were historically granted at a peppercorn or a trivial fixed rent, which kept them clear of the statutory tenancy regimes entirely. Modern leases often reserve a real rent, and some of them review it upwards. Once the annual rent reaches £250 outside Greater London — £1,000 inside it — the lease can fall within the Housing Act 1988 and be treated as an assured tenancy, despite having 90 or 990 years left to run.

Most people associate an assured shorthold tenancy with a six-month let, which is why this comes as a surprise. The classification is a consequence of the rent figure, not of the length of the term or anyone’s intention.

It matters whether the rent is over the threshold now or merely could be during the term. A rent that starts below £250 and is reviewed upwards reaches the same place by a different route, and the master wording covers that case specifically rather than treating it as hypothetical.

What follows from the classification

Every lease gives the landlord a right to forfeit if rent goes unpaid. Ordinarily the court can grant relief — cancel the forfeiture — once the arrears are paid, and in practice that is what happens. The exception is the one that bites here: where the tenancy is assured and at least three months’ rent has been more than three months overdue, the court has no discretion. It must terminate and give possession back to the freeholder.

The amounts involved can be very small. Three months of a £300 annual rent is £75. A dispute about whether the rent was demanded properly, or an unopened envelope after a change of managing agent, is enough to start the clock, and the lender with a charge over the flat may not find out until it is too late to put it right.

That is the risk lenders are pricing. The probability is low — the master wording for the related indemnity case calls the risk of repossession “exceptionally low” — but the consequence is the loss of the security entirely, and that combination is what makes underwriters cautious.

What can be done

Before exchange, the seller can be asked to approach the landlord to vary the lease and bring the rent below the threshold. As with any variation, the landlord need not agree and the seller may not want the cost.

Indemnity insurance exists for this risk, but it is not automatic and it is not always on offer. Where the lender will accept a mortgagee-only policy and somebody will pay for it, that is a separate situation with its own wording — see <i>The lender wants indemnity insurance for the ground rent</i>. Where no policy is being offered, as the master wording here records, the position is that a future sale may need one arranged at the time and at the seller’s cost.

After completion, variation by agreement and a statutory lease extension are both open, as they are for any onerous rent clause. A statutory extension of a qualifying flat lease substitutes a peppercorn for the whole of the new term, which removes the threshold problem rather than managing it.

How do lenders treat a high ground rent?

Cautiously, and not uniformly. Some lenders set a maximum ground rent, some set a maximum as a proportion of value, some address the assured tenancy point directly and some do not address it at all. Where it is not in the lender’s own instructions it does not apply, and where it is, it governs.

The reason for the caution is specific: the lender’s security can be extinguished by a forfeiture it had no opportunity to prevent. That is a different kind of risk from a rent that is merely expensive, and it explains why lenders can be relaxed about a large but stable rent and unhappy about a smaller one that crosses the threshold.

Where you are buying with a mortgage this will be reported to the lender. Requirements change, so the lender’s current instructions are what matters rather than what was acceptable on a similar flat last year.

Research lender requirements → Lexsure Lender Archive

Ground Rent likely to increase to over £250

Master precedent Lexsure e-ROTScope Rent approaching the statutory thresholdWord count 72Status Current master paragraph

The ground rent for your property under the lease does not currently exceed £250 per annum. However, it could reach or exceed this threshold during the lease term. This may concern future buyers or lenders, as leases with ground rents over £250 per annum (or £1,000 in London) fall under the Housing Act 1988 and are classified as Assured Shorthold Tenancies (ASTs). This classification could impact mortgage approvals and resale prospects. …

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