Ground Rent Increase every 10 years - please help!

gandv_2

Hi,

We are first time buyers and are purchasing a 2 bed flat in a block of 6 flats. When we met with our solicitor he flagged up that on the lease it says that every 10 years the ground rent is doubled (up to a maximum of 5 times). The ground rent is already £150 and is due for the first review in 4 and a half years.

He thinks this is very unusual and told us he has never seen it in a lease before.

In my parents lease, their ground rent is doubled every 15 years. Can anyone tell us if this is a big problem as we have been led to believe it could really affect our resale in the future.

Thank you for your help!

martinsurrey

300 in 4.5 years and then
600 in 15 years then
1200 in 25 years then
2400 in 35 years
4800 in 45 years

thats a 7.2% annual increase (in one lump sum), which means in 46 years time it will be £4800, which assuming inflation of 4% is around £700 in todays money.

would you buy the house if the ground rent was £700?

Richard_Webster

This is a case where the original buyers were conned and didn't realise the negative effect it would have. 20-25 yearly doublings might well be acceptable because people would take a view about general inflation levels and they would think that they wouldn't be there then! 10 yearly is too frequent because too quickly the figures escalate quite unreasonably.

You could try reducing your offer to take this into account, pointing out that this will affect value in the future quite significantly. Seller may or may not be convinced because unfortunately this is the kind of point that buyers don't spot and regret later, so there is a fair chance he would sell it to someone else who would get lumbered.

propertyman

In simple terms it's a little under 7% per annum.

In 20 years it could like "pricey", and discount aside, you might take it on at 300 going on 600 but would you do so at 600 going on 1200?

It could well dissuade future buyers.

So............

I suggest that you plan to apply for a statutory extension in 2 years time so that the rent becomes a peppercorn. Ask your valuer to do a valuation for this as the free tables will not help in this case.

Use that to negotiate the price.

gandv_2

Hi, thank you all for your advice, we are really having second thoughts now, as much as we love the flat itself, and feel that the price we would be paying is a good deal, we are concerned that it may be difficult to sell in future. Apparently this clause is common across all Taylor wimpey development leases but it doesn't give us much comfort really. Although financially the effect is minimal in the short term it does seem to be something that will put buyers off (as it is us!) so we are thinking of pulling out. Such a shame but as its taken us so long to save our deposit, we don't want to risk buying something we will be worried about in the future. Thanks again!

Richard_Webster

Starry eyed buyers of new builds rarely realise the possible problems in the future. Regrettably builders know they can get away with this sort of thing.

You can imagine builders want to maximise the value of the freehold when they sell it on to some property company once the development has finished.