Ground Rent Explained for Japanese Investors

Many Japanese investors and companies own or rent apartments in London. While the UK real estate landscape is stable and well-regulated, some of the terms used here are different from those in Japan. One of these is ground rent.

Ground rent is a part of the UK leasehold system and may not be familiar to Japanese investors. As the UK updates its leasehold rules, it is important to understand what ground rent is, how it works and how the recent changes can affect your London investments.

Understanding leasehold ownership in the UK

Most apartments in London are sold on a leasehold basis. This has been the most normal structure in the UK for many years. Under leasehold ownership, the leaseholder owns the apartment for a fixed term, usually 99, 125 and 250 years. The freeholder owns the land and the building itself and the lease clearly lists down what the owner can and cannot do, along with the costs involved.

What is ground rent and why does it exist?

Ground rent is an annual payment made by a leaseholder to the freeholder. It is not a service charge, not linked to any maintenance or support and set out clearly in the lease. Historically, ground rent existed as part of the legal structure that allowed apartment ownership on land owned by another party. In many cases, ground rent is minimal, especially in older, well-structured developments.

However, some leases were written a long time ago and include clauses that allow the ground rent to increase periodically. While completely legal, these clauses raised understandable questions for overseas buyers.

What changed in 2022 and why is this reform continuing?

In 2022, ground rent was removed from most new-build leasehold homes in the UK. This means that many new apartments in London are already sold with little or no ground rent. Older leasehold properties, however, were left unchanged. They continue under the same terms set out in the original leases.

As a result, ground rent arrangements currently differ depending on when a property was built. The current reforms will narrow this gap and make ownership terms more consistent, all while keeping the existing agreements intact.

What does the new ground rent reform propose?

Under the new rules, ground rent on existing leasehold properties will be capped at £250 per year. For owners who currently pay more than this, the change will bring clarity and remove uncertainty about future costs. Gradually, this rent will reduce further and eventually be at a peppercorn, near-zero level; which implies it won't be an ongoing expense. In addition to this, service charges will also be presented more clearly. This will make it easier for overseas owners to understand what they are paying for and to manage costs from abroad.

Why do the new reforms matter to Japanese investors and companies?

Japanese property buyers are typically long-term focused and cautious about structural risk. For individual investors, the new reforms provide more predictable ownership costs, reduced long-term uncertainty and improved resale confidence.

For Japanese companies leasing homes for employees, the reforms support clearer budgeting for accommodation costs and easier explanation of charges to relocating staff.

How Benham and Reeves Japan supports Japanese clients

Benham and Reeves Japan office is led by a dedicated team of Japanese professionals who understand both the UK property market and the expectations of Japanese clients. With a focus on smooth lettings and tenancy management, we offer assistance with Japanese corporates leasing homes for employees, individual investors letting property in London and expatriates relocating to the UK.

With 21 branches in London and access to some of the best new developments, we are a one-stop relocation service and assist clients with location advice, viewings, tenancy support and deposit resolution.

If you would like one-on-one guidance on how these reforms apply to your London property or tenancy, speak with our Japan Desk today.