The concept of ground rent explained


In our discussion on the concept of leases, we mentioned ‘Ground Rent’ as an essential element in leaseholds. To explain the term Ground Rent in simple terms, we can look at the term ‘Rent’ which refers to the regular payments made by tenant to a landlord in exchange for the right to occupy a space of property on conditions agreed between them.

Similarly, Ground Rent refers to the regular payments made by a leaseholder to the freeholder or a party with a superior interest, in accordance with terms and conditions agreed under the lease. These payments are usually annually but made be quarterly, half-yearly, bi-annually, or any form as may be agreed between the parties and may be subject to periodic reviews during the lease.

The basic principle around this subject is that, in a leasehold transaction, the subject property is demised unto the leaseholder or lessee at a value known as the consideration. The value of the leasehold interest is basically the present value of the sum of the annual market rents passing on the property over the period of the lease considering market interest rates. So, the parties may agree for the consideration to be paid in the following ways:

  1. Payment of part of the value of the leasehold as a lump sum at the beginning of the lease, known as premium and spread the remaining as annual rent to be paid during the term of the lease. This allows the for lower rent to be paid.
  2. Payment of Full Rents annually. In this case, no lump sum payments are made at the beginning of the lease.

Given that ground rent is part of consideration or is consideration for the lease, non-payment is a breach of the lease agreement and therefore could constitute grounds for the termination of the lease.

Who has the right to charge ground rent? Well, anyone who legitimately grants a leasehold interest to another has the right to agree on ground rent payment with the lessee. The right is borne out of the transaction being entered into by the parties and nothing else. Charging ground rent is not the sole right of any party, agency, or organization but rather, an agreement as made by the parties making a lease.

For stool lands however, the Office of the Administrator of Stool lands (OASL) assesses, advises, and collect ground rents for and on behalf of the stools and disburse same in accordance with the formular as provided by law. Refer to Article 267 of the 1992 Constitution and the Office of the Administrator of Stool Lands Act, 1994 (Act 481).

The Lands Commission through the Public and vested Lands Management Division is also responsible for the administration of ground rents in respect of state lands.

Ground rent is essential because it serves as source of periodic incomes to landowners even after they have transferred the land to others. When ground rents are properly managed, it could be a great source of economic stability for landowners since market interest rates may have influence on the rents if periodic reviews are were agreed as part of the lease. Imagine the OASL and Lands Commission collecting all ground rents due them, that will be a great source of income to the stakeholders; monies that could be used to facilitate socio-economic development.

To the leaseholder, it is a guarantee of once ownership of the leasehold interest obtained. Paying ground rent on time to your lessor could be a good evidence of your ownership of the property in the event of land dispute. This is because, it shows your landlord recognizes you as his tenant if you he continues to accept ground rent from you.

The concept of ground rent is however faced with so many challenges. Notable ones are as follows:

  1. Lack of education on the subject makes it difficult for people to understand and appreciate its essence. Most landowners do not even understand what this is about and therefore are not able to properly apply it during lease negotiations. Some leaseholders who even want to pay ground rent do not know when, where and how to pay. It is important for government to invest in programs that will educate both landowners and the public on this very important subject since it contributes to economic development.
  2. Also, improper records keeping by landowners makes it nearly impossible for the collection of the rents due. In the case of family lands and individual lands, ground rents are only seen as a component of the lease document and not an entitled payment due the landowners. Most leaseholders have taken advantage of this, even though some people do not genuinely know, but this is a breach of the lease agreement. When the landowner decides to invoke their rights to collect leaseholds, you may be in trouble if you have not been paying it.
  3. Lack of transparency in the collection of ground rent is also a major challenge. There are regular complains of people paying their ground rents to the wrong person(s) and being issued fake receipt or no receipt at all. Unaccounted use of the monies collected also make people feel agitated to pay.
  4. The use of non-professionals by traditional landowners in the negotiation of leases also creates problems right from the beginning. It will be interesting to note that, ground rents do not even come up during lease negotiations most of the time. I usually come across leases where the ground rent amount payable is not stated and no review clauses inserted.

The challenges a many, but it all balls down to lack of knowledge and expertise. I strongly advise the use of services of professionals in the negotiation and management of leases. When done right, it protects both the landowners and the leaseholders. Payment of Full Rents annually. In this case, no lump sum payments are made at the beginning of the lease.

If you have a lease and have never paid your ground rent or you are in arrears, I strongly advise you to arrange to pay it immediately for it is in your own interest. You may contact the OASL if your lease is on a stool land to arrange for payment. You may also contact me if you are not sure where to pay your rent.

The writer is a Chartered Valuation & Estate Surveyor Alternative Dispute Resolution Practitioner

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