Ask The Experts - Ground Rent

Answer

Some practices with leasehold premises have their ground rent reimbursed as well as notional rent. But this should not happen other than with the exception below for costs rents.

Ground rent is the rental value of the site excluding the building. Once the building has been constructed, the ‘current market rent' (CMR) refers to an overall rent encompassing both land and buildings. Whether the land was purchased initially for a cash sum or continues to be rented by paying a ground rent will make no difference to the CMR and hence to the reimbursement.

The exception is where you are receiving cost rent based on actual costs. If you purchased the land, the calculation would include the purchase price together with fees and construction costs and place on that a percentage return, there-by creating the cost rent reimbursement amount.

If you took a long lease on the land, paying a ground rent with no initial capital sum, the cost rent would not include any element of land. In this circumstance, the cost rent and the ground rent would both, rightfully, be reimbursed.