Buying a leasehold property comes with financial obligations that freeholders rarely have and two of the most misunderstood are ground rent and service charge. They often appear on the same demand, get lumped together in conversation and are frequently confused even by leaseholders who’ve been paying both for years.
However, they are legally distinct charges, governed by different rules. Understanding the difference matters for budgeting, selling your property, and knowing your rights if something looks wrong.
Leasehold ownership and additional financial obligations
The Leasehold and Freehold Reform 2024 Act’s goal was to make it easier and cheaper to purchase leasehold property. They done this by making it cheaper to extend leases, increasing the standard lease duration, reducing ground rent # to a ‘peppercorn’, alongside improving the transparency of service charge etc. Despite the efforts of the House of Commons, purchasing a leasehold still has more financial obligations compared to purchasing a freehold property.
The government noted that approximately 3.8 million properties continue to attract ground rent despite it being abolished for most new leasehold properties in England and Wales (2022). This resulted in homeowners overall paying approximately £600m + for ground rent in 2025. Around 65% of leaseholders reported that they paid a service charge in 2023/2024.
Furthermore, the English Housing Survey estimates the average yearly ground rent in 2023/2024 to be £304 and yearly service charge to be £1720.. The English Housing Survey are yet to release the statistics on leasehold properties for 2024/2025.
Why do these charges confuse leaseholders?
These charges are frequently misunderstood because they usually are shown together on payment demands. One of the Leasehold Reform (Ground Rent) 2022 act’s objectives were to clarify the distinction between ground rent and service charge for purchasers of leasehold properties.
Why is it important to understand the difference between the two?
Understanding the difference between the ground rent and service charge is crucial for budgeting, selling and avoiding disputes. The reasoning for this will be established throughout the article.
What is ground rent?
Ground rent is the yearly amount you pay under your lease simply because your home sits on land owned by the freeholder. It is a fee set out in your lease and is not linked to any specific service being provided. If you have a long lease (21+ years), you’ll normally have to pay ground rent per year even though the landlord is not required to offer a defined service in exchange. Although it is a known term, ‘ground rent’ does not actually have a formal legal definition in England and Wales.
What is a service charge?
Service charge is a fee that you pay your landlord/management agency to cover the day to day repairs and upkeep of the shared area/building. Service charge should cover regular maintenance of the building, repairs of communal areas, insurance, management costs and additional services such as cleaning, lighting, security measures etc.
Alongside the regular service charge, you’ll often have to contribute to a ‘sinking fund’. This is a separate fund collected to cover the major works costs such as roof repair, lifts etc.
Key differences at a glance:
| Ground Rent | Service Charge | |
| Purpose | Payment for land use | Payment for building maintenance/ services |
| Amount | Fixed by the lease | Varies based on actual costs |
| Legal Position | Banned for most new leases since 2022 reform | Must be ‘reasonably incurred’ |
| Who sets it? | The freeholder | Freeholder / Managing Agent |
| Can it be challenged? | Limited as it is contractual if there is ground rent | Yes through the First-tier Tribunal |
| Impact on saleability | High costs can affect mortgage as the property is seen as high risk. | High charges / poor management can deter buyers |
Overall, ground rent and service charge serve different purposes. The distinction between the two can affect affordability, legal rights and the mortgageability of a property. With the ongoing reforms coming into effect, these charges are more important to understand than ever.
Frequently asked questions
What is the main difference between ground rent and service charge?
Ground rent is a fixed payment to the freeholder simply for occupying the land under the lease, with no actual service attached. A service charge covers the tangible, itemised cost of maintaining, insuring, and managing the building and shared areas etc.
Can I refuse to pay ground rent?
No,if your lease includes a valid ground rent clause, you’re contractually obliged to pay it, even though it doesn’t relate to any service. However, if your lease was granted after June 2022, ground rent should already be a peppercorn (zero). If you believe you’re being charged more than your lease permits, you should seek legal advice.
Can I challenge my service charge if I think it’s too high?
Yes. Unlike ground rent, service charges must be reasonable, and leaseholders can challenge them at the First-tier Tribunal (Property Chamber) if they believe costs are excessive, unjustified, or improperly calculated.
Is ground rent being abolished in the UK?
It’s already been reduced to a peppercorn on most new leases granted since June 2022. For older leases with existing ground rent obligations, the government has proposed capping ground rent at £250 a year, reducing to a peppercorn after 40 years, but this is not yet law and is unlikely to take effect before around 2028.
Why is my service charge so much higher than my ground rent?
Service charges reflect real, ongoing costs of running a building — insurance, repairs, cleaning, staff, and compliance costs — which tend to be substantially higher than a fixed ground rent, particularly for flats with shared structures and communal areas. Ground rent, by contrast, is a legacy payment unrelated to any actual service and which simply provides the freehold owner with a fixed income.
Does the difference between ground rent and service charge affect whether I can get a mortgage?
Yes, potentially. Lenders often have strict criteria around ground rent, particularly where it escalates quickly or doubles at set intervals, and may decline to lend against a property they consider a financial risk. Service charge arrears can also affect a sale, since unresolved debts may need to be settled before completion.
