New home buyers constantly ask the same question when trying to purchase a leasehold property. Is ground rent the same as service charge? The answer is No! It is totally different. Ground rent is the amount paid to the landowner where the leaseholder building is located. In the past, ground rent was just not a significant amount, but paid annually. Earlier parts this century, estate developers introduced new clauses. In 2017, much was said about the huge sum ground rent attracted. Some call it ground rent scandal. Ground rent scandal talk peaked as it was revealed the rent was to double almost every 5 to 10 years. And that leaseholders were going to be paying up to £200-£500 over a period of 50 years.
Service charge on the other hand is the cost of maintaining the building you occupy as a leaseholder. The landlord is responsible for the maintaining the building. But the leaseholder foots some of the bill of maintenance. The landlord usually gives an approximate figure of what the total maintenance cost will be for the next year. Often times, the landlord employs the service of a management company to collect his service charges. Leasehold service charge may include the following: security service, garden ground maintenance, cleaning service, CCTV, management fee, refuse disposal, pest control, staff cost, maintenance and repair and so on.
Important things to note on ground rent and service charge:
1. How service charge is calculated: At the beginning of every financial year, an estimate based on the amount intended will be determined. This is what will be spent in maintaining the building or estate. It will then be sent to the leaseholder. This cost is usually for the upcoming year. Bear in mind that this is just an estimate. Before the end of the year, the actual cost of all maintenance will be sent to you. It is your right to demand for a detailed summary if not sent.
2. When to pay your ground rent: Except your landlord sends a formal request or demand, you don't need to pay ground rent. Although, he can demand for payment of the accumulated sum close to 6 years at once. That's if he choices to send one. He can increase your ground rent if you both agree to it, or if it is stated in your lease terms.
3. Resolving dispute: You are at liberty to dispute your service charge. First, you have to wait until you receive the actual cost of maintenance before you can lodge a complaint.