Ground Rent Investments and Management
What are ground rents?
In very simple terms ground rent is the rent paid by owners of the land on which a building sits. With most domestic property there is a single owner of a property, known as the freeholder. However, where property has been developed for apartments, for instance, the ownership is often split into freehold and leasehold interests. The leaseholder will generally be responsible for their demise such as the bricks and mortar i.e. the apartments. The freeholder retains the ownership of the land. In return for the use of the land on which the building is located the leaseholder is required to pay the freeholder an annual rent. This is the ground rent. This system has developed historically through the system of Common Law.
Investors who are looking at low-risk ground rent investments
Investors are increasingly seeking out low-risk investments paying high levels of income. This is an investment profile that fits ground rents where the owner and landlord ultimately have the sanction to take back the freehold of the land if the leaseholder fails to pay their rent. This is a big incentive for the leaseholder to keep paying the ground rents and not to default on the lease. It also gives the landlord a great deal of security as the failure of the tenant to make payments or breach the lease, could ultimately result in the landlord taking the land back and then making a big capital gain on the reversion of the freehold interest to them, this creates a no-lose scenario to the freeholder.
What are the opportunities for investing in ground rents?
Many landlords are put off by the slightly unusual nature of these investments. The head of commercial auctions at Savills explains ground rents are the ‘closest proxy to investing in bonds that the property industry offers’.
“Too many investors overlook the huge returns on offer”, says Sinead Cruise a journalist for Property Week recently commented. The market in ground rent investments is now a mature market with a number of businesses operating in the sector. Low returns on investments have made investing in ground rents attractive for income-seeking investors.
Is there a downside?
Ground rent investments are not for the novice investor and there are numerous laws that relate to the relationship between freeholder and leaseholder (Landlord and Tenant) to navigate. In order to benefit from your investment, it is always wise to take professional advice or seek the help of an experienced ground rent investment manager to help guide you in obtaining the investment return that you are looking to achieve.