Ground Rent
Regular payments made by leasehold property owners to the landowner for the right to use the land their property sits on.
What is a Ground Rent?
Ground rent is the periodic payment a leasehold property owner makes to the freeholder (the person or entity that owns the land) in exchange for the right to occupy and use the land. In New Zealand, leasehold properties are relatively uncommon but exist in certain areas, particularly in parts of Wellington (Wellington Tenths Trust) and some Auckland suburbs.
Ground rent is typically reviewed at set intervals, commonly every 7, 14, or 21 years. At each review, the rent is reassessed based on the current market value of the land. This can result in substantial increases — ground rent that was affordable when you bought can become a significant financial burden after a review, particularly in areas where land values have risen sharply.
The terms of the ground lease, including the rent review mechanism, are set out in the lease agreement. Different lease structures use different methods for calculating ground rent — some are based on a percentage of land value, while others use independent valuation. Understanding the review mechanism is critical before buying a leasehold property.
Why It Matters for Due Diligence
Ground rent is a significant ongoing cost that fundamentally affects the affordability and value of a leasehold property. Before buying, review the full lease document with your lawyer and understand the rent review mechanism.
Get the history of ground rent amounts and the dates of past reviews. Calculate what ground rent might be after the next review, based on current land values. A dramatic increase in ground rent can make a property unaffordable and reduce its resale value. Get specialist legal and financial advice before committing to a leasehold purchase.
How to Check
The ground lease document contains all the terms, including the current ground rent, review dates, and review mechanism. Your lawyer should obtain and review the full lease. Ask for the ground rent history and calculate the potential rent after the next review. Your lawyer or a registered valuer can help you estimate future ground rent based on current land values.
Frequently Asked Questions
How much can ground rent increase at a review?
There is often no cap on ground rent increases. If land values have risen significantly since the last review, ground rent can double or even triple. This is one of the biggest risks of leasehold ownership. Always check the review mechanism before buying.
Can I negotiate ground rent?
Ground rent at review is typically set by independent valuation or a formula in the lease, so there is limited room for negotiation. However, you may be able to dispute the valuation if you believe it's unreasonable. Some landowners may negotiate on other lease terms.
Related Terms
Leasehold
GlossaryA form of property ownership where you own the buildings but lease the land from a separate landowner for a set period.
Rates
GlossaryAnnual property taxes charged by your local council to fund public services, infrastructure, and local government operations.
Body Corporate Levies
GlossaryRegular payments made by all unit title owners to fund the maintenance and management of shared property in a multi-unit development.
Land Value
GlossaryThe council's assessed value of the bare land only, excluding any buildings or improvements, used as part of the rating valuation.
Settlement
GlossaryThe day ownership of a property officially transfers from the seller to the buyer and the purchase price is paid in full.
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