If you’ve ever read through a lease and found reference to a “peppercorn” ground rent, you may have thought what does this mean and why am I paying in peppercorns?
The term does not have a hidden legal meaning, it is actually referring to a peppercorn that we put on our food. So why do our leases use pepper as currency?
The Origins of the Peppercorn Rent
The phrase “peppercorn rent” dates back hundreds of years and has important legal significance. In Medieval times, pepper was a rare spice that held some value.
Landlord’s would ask for a peppercorn as a means of payment that would not be too onerous on the tenants. It was never really meant to be paid—it simply preserved the formality and enforceability of the lease under contract law, as without it the contract would not have fulfilled the necessary elements of a contract.
The 5 ingredients of a Contract in English Contract Law
For a contract to be enforceable it must contain the 5 necessary ingredients. As I write this, it occurs to me how many food-based references there are, perhaps the result of some hungry legislators and judges.
It is well established that for a contract to be legally binding in English law, the agreement must contain the following 5 ingredients:
1) Offer
2) Acceptance
3) Consideration
4) Intention to Create Legal Relations
5) Capacity to Enter (e.g. not a minor)
Consideration is the relevant ingredient to the origins of the peppercorn rent. Consideration means something of value (generally money) that moves from one party to the other and acts as a detriment to one party and a benefit to the other.
The use of peppercorn as rent acted as acknowledgement by the tenant of their obligations to the landlord under their lease. It was something of value necessary to create the agreement, but was not financially demanding on the tenant.
Today, a peppercorn is still viewed as good consideration. In Chappell and Co Ltd v Nestle Co Ltd [1960] AC 87 the Judge quipped in dicta “a peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn”.
There are other non-monetary items that can be taken as good consideration. In certain buildings in London’s Covent Garden the rent is “a red apple” or a “posy of flowers”. In old gift deeds to protect against attack the gift would be “in consideration of love and affection”.
Today, technically, the peppercorn consideration is not actually required to make a lease legally binding because long leases and registrable property dispositions have to be executed as a deed and, unlike an agreement, a deed does not require consideration in order for it to be valid. However the historic significance of the peppercorn remains in practice. See our article here on the difference between contracts and deeds.
The Return of the Peppercorn
The peppercorn was becoming more of a rarity in recent times with ground rents starting to increase in value. Over the last 30 years it became common to see ground rents increase from a nominal sum to a significant amount. The doubling ground rent scandal saw ground rents double every 5 or 10 years leading to substantial rental figures that rendered the properties unmortgageable by high street lenders. These practices caused concerns amongst tenants, mortgage lenders and the government, leading to the passing of The Leasehold Reform (Ground Rent) Act 2022 which, for the first time in English statute, defines a peppercorn and limits ground rent on most new residential leases to one peppercorn. It also prohibits charging fees for collecting the peppercorn (say a fee of 5 peppercorns?…).
Under the Act:
• Most new long residential leases (over 21 years) must not reserve a ground rent of more than one peppercorn per year.
• This effectively bans landlords from charging ground rent on new residential leases (with some exceptions for business leases, statutory lease extensions, and community housing arrangements).
It still leaves a theoretical question: if peppercorns are still to be viewed as good consideration and the Ground Rent reforms were intended to abolish ground rent, why are peppercorn ground rents still allowed at all? So far, the courts and the legislation itself accept that peppercorn rents are compliant because they are nominal and non-enforceable in practice. Perhaps in a post-apocalyptic world when pepper holds great value, the legislators will need to revisit this one… or maybe we can rule that one out.
Conclusion
So, the next time you see “a peppercorn, if demanded” in your lease, know that you are part of a centuries-old legal tradition. While modern law has clamped down on unfair ground rents, the peppercorn endures—not for its value, but for what it represents: a nod to legal formality in an evolving leasehold system.
But as the law continues to develop—and as leaseholders and landlords challenge ambiguous terms—might even the peppercorn one day be shelved as more than just seasoning?
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