Views on ground rent of £300 pa doubling every 10 years

time2deal

princeofpounds wrote: »

£300/0.06 is £10k. That's roughly how much more 'expensive' this ground rent makes the house.

BUT escalation clauses make the calculations more complex. They also make the ground rent far more valuable. Doubling every 10 years is way in excess of expected long-term inflation rates. Not going to do the sums as I have other things to do but you can see from the projections people have done that it's much more valuable.

FYI - using 3% discount rate (which reflects a generous current interest rate) the current value of the increasing rent is around £666k. The £300 non-increasing is about £9.7k as PoP stated.

propertyman wrote: »

If you average inflation over 10 years at 3% £300 will be @ £405.

It is a huge obstacle, and even extending the lease is far more expensive that it might be as the premium takes into account this huge rent increase.

Watch out a for clauses that refers to RPI - they often double as well its just not apparent on the first reading!

That's a very good point. People seem to forget that it won't be in 120 years that this is a problem, but in about 20 when your lease starts to drop below 100 years, and buyers get a little nervous.

I calculate it would cost about £2.046m (yes - million) to do a statutory extension at the 80 year point. The statutory extension would set the GR to zero, but that is the cost. It's higher than the current value as the early cheap years are gone, and you are buying an 80 year high value income stream.

If rates go very high - say up to 10%, then things get a lot cheaper very fast, but it would still be a major consideration for me.

Joannef_2

Thanks for all the replies. I had hoped I'd be able to try and negotiate the review clause but I've spotted a couple of other clauses that I'm not happy with so I don't think they will want to review the leases just for me :-).

This is one of the other clauses which relates to the recoverable service charges. Still can't decide if it's just poor drafting or very dodgy! Quite surprised none of the other buyers have queried it:-

All expenditure incurred in respect of any employees of the Management Company in the provision of uniforms clothing or accommodation and all outgoings incurred in connection therewith or payable in respect thereof and the cost of any such other items in connection therewith as the Management Company shall from time to time determine

Officer_Dibble

I've previously discussed these types of ground rent increases with a friend who's in finance with a builder who specialise in this kind of escalator. Rest assured, she and her company know they're onto a good thing (at least until the misselling scandal breaks). Apparently, surprisingly few buyers object or pull out because of them - and they simply sell the flats to someone less astute. Considering some of the pettifogging points that can bog down conveyancing, it seems that escalating ground rents are a rather large elephant in the rather cramped new-build room.