It is therefore usually lower than the rent that might be achieved for a building let on the open market, and is let for a longer term — at least 21 years, but more commonly 99 years, 125 years, or even 999 years.
Inflation has eroded the value of ground rents on properties prior to 2003 often with long leases and non-rising incomes, so their value is often now small where there is no prospect of a reversion (when the ownership of the property reverts to the freeholder) within say 150 years.
Normally they focus on purchasing reversionary ground rents, either for initial income or for the opportunity of a reversion of the underlying property at some point in the future.
The value of ground rents is affected by the rent review pattern on future income increases, the value of the underlying property, the unexpired lease length and whether marriage value is applicable.
As a legal term, ground rent specifically refers to regular payments made by a holder of a leasehold property to the freeholder or a superior leaseholder, as required under a lease.
In this sense, a ground rent is created when a freehold piece of land is sold on a long lease or leases.
Leaseholders have a right after 2 years to extend the lease and reduce ground rent to "peppercorn" or zero, but developers have responded with 999 year leases that make the valuation - based on the ground rent and term - beyond the reach of leaseholders, and sell the freehold - often before the development is finished - to exploitative offshore companies.
Freeholders lease property primarily for the initial premium paid by the original leaseholder for granting the lease; but in addition ground rent (often a token amount) will be payable over a long term, and this may be an attractive fixed income investment for some types of investor.
The contemporary accepted meaning of ground rent is the rent at which land is let for the purpose of improvement by building: i.e.
a rent charged in respect of the land only, and not in respect of the buildings to be placed thereon.
This then allows completion upon sale of the last flats without the need for Section V notices.
Before 2003 the Land Registry recorded the ground rent, and the rent is evident from the entry that can be requested from the website.