© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
Ground rents are often described as providing a seemingly risk-free, high-yielding investment to the owner; however this is a common misconception amongst smaller investors or owners that have inherited a small portfolio or own them as bi-product of developing.
The legislation of ground rent management is extensive. Designed to protect leaseholders from overcharging, it provides opportunity to dispute such matters at little cost. This can result in smaller freeholders being left out-of-pocket for insurance or maintenance works because they have failed to invoice the lessees correctly. In some instances it has left freeholders liable for bills of over £10,000 for major works.
The combination of low returns per property, high risk and time-consuming management often sees smaller freeholders forced out of the market and, as a result, disposing of their investments at low prices just to get rid of the headache.
For larger, more specialist investors, situations such as these do not arise. Economies of scale drive down the cost of rent collection, and expert knowledge enables them to benefit from the management and place a higher value on ground rents.
Traditionally solicitors and valuers have advised freeholders that auctions are where the best prices for ground rents can be achieved however this is not necessarily the case. Investors are often cautious of purchasing from auctions due to the lack of information provided prior to the auction and will therefore apply a discount to their purchase price to account for this risk. Selling at auction is also a time-consuming process as leaseholders must be given 4 months’ notice. Finally, at auction, there is no guarantee the property will sell!
Historically the ground rent market was dominated by a handful of well-known players but the crash in 2007 saw investors seek a more stable product where returns could be forecast over a longer time. As a result an increasing number of fund managers have and continue to enter the market, increasing the competition to secure these risk-free, high-yielding investments.
While interest rates remain low there will be an increasing number of new entrants to this market and the price of ground rents will remain high. The price of ground rents is so closely but inversely linked to interest rates that inevitably the market will settle down in the near future. Now is probably the best time to sell.
Developers: In the present property climate it is becoming increasingly difficult to raise finance to build new homes.
Specialist ground rent investors can help. Many developers have seen ground rents purely as a bonus or afterthought. Instead of building a block, granting the long residential leases then selling the ground rents post completion, developers should contact a ground rent investor prior to build. Not only will the investor provide expert advice on structuring the leases to maximise value, the investor can ‘forward fund’ the investment by purchasing the freehold interest from the developer and granting them a head lease back with full rights to complete build.
Todd Harrison-Moore is Head of Ground Rent Acquisitions at The Regis Group PLC