What is a Leaseholder?

A long leaseholder owns a leasehold interest in property for a long period of time. This tends to be from 99 years and upwards. They have the the rights to occupy and use this property, subject to the terms of the lease, which, if not a new build, will bind them to paying ground rent and service charges.

What is Ground Rent?

Ground Rent is a periodic payment made by the leaseholder to the freeholder. This is as a consideration in a lease agreement for occupying and using the land on which a property is built.

Ground rent is typically paid annually, half-yearly, or quarterly. The amount is usually fixed at the commencement of the lease and is often subject to review and increase according to terms specified in the lease. This can be by a fixed amount or maybe index-linked.

Ground rents and leasehold arrangements are subject to numerous laws and regulations. Recent reforms have been introduced to address issues such as high and escalating ground rents, and to offer leaseholders better protections. An example of this is the Leasehold Reform (Ground Rent) Act 2022 which prevents all future leases on new build properties from charging ground rents.

What is Property Service Charge?

1. Definition of service charge: A service charge is a cost paid by the leaseholders within a building or development that provides common amenities or services. This charge can include building insurance, common area maintenance, repairs, landscaping and other shared services.
2. Purpose of the Service charge: This charge helps to fund the maintenance and management of the building's common areas and makes sure that these areas remain in excellent condition for all residents.
3. Frequency of Service Charge Payments: Service chargeare typically set by the property owner or property Management Company and may be paid regularly. This is usually monthly or quarterly.

It is important to remember that based on the typre and size of the property, its location, its age and the conditions of the lease, both ground rent and service charges will differ significantly. Leaseholders should read their lease agreements to understand the particular responsibilities and expenses related to these fees. Furthermore, disagreements over ground rent and, especially, service charges may occur.

What Happens if you do not Pay a Service Charge?

Non payment of the service charge will be variously affected by the lease as well as the law. Some of the common penalties include the following:

Late fees and interest: Whenever the service Charge are not paid in proper time, late payment interest, along with other penalties, is incurred in most situations. These are additional levies that might build up over some time and increase the debt owed.
Legal Action: The Property Management Company or the Freeholder holds the right to initiate a legal action to recover money.
Repossession: The lease does allow for the freeholder to take repossession of the property for non-payment. In reality this is nigh on impossible but the threat does remain.
Loss of Services: Due to nonpayment of the service charge one can, within a short period, experience a loss in services. Less maintenance and repair services may be offered by the property.

If you do get behind on your payments, you should have a conversation with your Property Manager. Reading and understandsting the terms of your lease is very important. Some Managing Agents may well provide additional resources, such as payment plans or some other way of collecting owed payments.