Ground rent over £250? Your lease might be an AST.

Linz Darlington | June 2024

If you’re a leaseholder, you are generally thought of as a homeowner. However, technically your lease is a tenancy. You (or the original leaseholder) paid a large sum of money upfront to have the right to use the flat for a very long time – usually 99 years or more.

In addition to the upfront payment, it’s common to pay a ground rent to your freeholder. Historically these were very small sums, many leases from the 1980s or before had low ground rents of £10 to £100.

However, in more recent years it has been common for freeholders to lease flats with higher ground rents which go up over time. These are known as escalating ground rent clauses.

If your ground rent is currently over £250 (outside of London) or over £1,000 (in Greater London) (see 3A) then in certain circumstances it would be possible to treat your long lease as an Assured Shorthold Tenancy (AST).

An Assured Shorthold Tenancy is usually a legal concept used for letting flats for short periods of times.

What’s the problem with a long lease being classed as an Assured Short hold Tenancy (AST)?

The problem with an Assured Shorthold Tenancy is that the landlord (in this case your freeholder) may be able to use the rules under Section 8 of the Housing Act 1988 to repossess your flat or terminate your lease if you fail to pay your ground rent.  This applies even if the rent outstanding is a tiny proportion of the value of your flat.

Unlike other type of forfeiture, if certain conditions are met, the Court will not be able to stop your freeholder taking possession.

If you’re reading this article because you’re already in a dispute with your freeholder, then you need to seek legal advice immediately. It is outside of the scope of this article to advise you whether your flat can certainly be repossessed using this route, or how to deal with your freeholder making a possession claim.

Frustratingly, it was hoped that this £250 ground rent trap would be fixed in the Renter’s Reform Bill. However, this bill was canned when the election was called in May 2024.

What’s the knock-on effect?

It is important to note that possession rules explained above don’t apply to all leases or all leaseholders.

A few examples of where they do not apply are if:

  • The flat is owned through a limited company
  • Where the lease was dated before January 1989
  • Where the flat is not the leaseholder’s principal home

Equally, so long as you pay your rent in accordance with the lease, you shouldn’t have a practical issue.

However, we often find that potential practical issues often become amplified into much wider theoretical issues by mortgage companies and conveyancers representing purchasers.

For example, when lenders are concerned that a freeholder might repossess a flat, they might not want to lend on it. You might struggle to get a mortgage.

Equally, if you’re trying to sell your flat the buyer’s conveyancer might advise their client not to buy your flat. Then you have an unsellable flat.

Often, we find mortgage lenders and conveyancers overcautious and black and white in their decision-making process. If there could maybe possibly be practical issue in the future, they act as though it is already definitely an issue now.

How do I fix it?

Fortunately, if you've got a ground above £250 (£1000 in Greater London) then you have some options to remedy the ground rent trap.

Option 1: Deed of Variation to Cap Ground Rent

The first option is to contact your freeholder to see if they will cap ground rent, either at £0 or at £249.

This will show any future buyer or future lender that your lease categorically can’t be an Assured Shorthold Tenancy. Problem solved.

The issue with this approach is that your freeholder won’t want to cap your ground rent for free – because they’ll lose their income.

Accordingly, they’ll either refuse, or charge you a sum of money to reduce your ground rent. They set the price and it doesn’t need to be fair.

Equally, if your ground rent is still above a certain percentage of the value of your property (usually 0.1%) or rises too frequently, buyers and mortgage lenders might still be put off.

Finally, there is no obligation for the freeholder to do a Deed of Variation, and they can work as slowly or quickly as they want.

Option 2: Mortgage Possession Clause

The second option is to do a Deed of Variation to add what is known as a “Mortgagee Protection Clause”.

This is a piece of wording which essentially requires the freeholder to serve on the lender notice should they intend to bring a claim of possession, and usually give them notice throughout the process.

This means the lender can step in to pay the leaseholder’s arrears, and ensure that the flat is not repossessed.

Usually freeholders will still charge a premium (one example we saw was £1,500) to include the clause. In addition, they can use the fact the lease is being varied to make other changes – such as updating other restrictions and charges that won't benefit you. You’ll need to pay the freeholder’s solicitors fees too.

The problem with this approach is that you might find that your current lender is happy with the clause drafted, but it doesn’t satisfy a future lender or purchaser. Then you’re back to stage 1.

Option 3: Indemnity Insurance

Another option than the Mortgage Possession Clause is to take out an indemnity insurance policy. This is often cheaper.

This would mean that, should your flat be repossessed, the insurance company will make good with your lender.

This might satisfy your lender, but it won’t provide you (and any equity you have in your flat) with any security.

Option 4: Statutory Lease Extension (and set the ground rent to £0)

The final option is to do a statutory lease extension.

One of the benefits of a statutory lease extension is that it will set the ground rent at £0, or a peppercorn, for the duration of the existing lease and for the 90 additional years of the next one.

While you will have to pay your freeholder to “buy out” the ground rent and add the extra years, you’re sorting out the issues once and for all

  • You’re reducing the ground rent to £0, so your lease can never be an AST and any lender or buyer in the future can’t argue the ground rent is an issue for any other reason
  • You’re adding an additional 90 years to the lease, which means you’ll probably never have to extend it again.
  • Your freeholder can’t make any other negative changes to your lease.


In conclusion, we always recommend a statutory lease extension. While it isn’t always the cheapest option, it will solve the problem for now and the future.

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Linz is the CEO and co-founder of Homehold. He’s always looking at how we can improve our service and better support you through the lease extension process. If you have any questions about your lease he’d be delighted to help.

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