Ground Rent Increase with RPI Retail Price Index

MAJT

Hello,
First time user here at MSE so hope this works.

Long story short in 2007 I bought an apartment, in 2009 I met my wife and we bought a new house together, as I had lost so much equity in the flat I could not sell and was forced to rent, and have done so since.

Since then I have been paying extortionate maintenance fees, and ground rent.

Every year I have been paying a whopping £200 ground rent for an apartment that is now worth only £55,000 on top of maintenance charges of almost £70 per month and not getting much for it.

I have now had a letter saying that the ground rent is increasing in line with the Retail Price Index to £274.77 that's a 37.08% increase. It states that they can do it every 10 years (although has only been built 7 years) and is in my lease.

Is this normal? Both my parents and in laws live in large detached houses in comparison and pay only £8 a year ground rent to some old dear down the road.

I feel trapped, I have lost nearly 50% equity since I bought the flat and am paying over £1,000 a year to maintain a £55,000 property!

My question is what has the Retail Price Index got to do with a residential apartment, and is a 37.08% increase justified?

Look forward to hearing some responses and many thanks for reading.

jjlandlord

What exactly is in your lease?

propertyman

Not getting much for it. Thats right the building insures itself cleans itself and the lights in the hallways work on magic....:p

As to the rent review, even if the flat was brand new or was a few years old the date of the lease, not the date the first buyer owned it or sold it to you, is when that clock runs.

When the little old dear down the road obtained the freehold ground rents were notional, and that all changed in the early 2000's and such a review based on RPI is very common.

ognum

MAJT wrote: »

Hello,
First time user here at MSE so hope this works.

Long story short in 2007 I bought an apartment, in 2009 I met my wife and we bought a new house together, as I had lost so much equity in the flat I could not sell and was forced to rent, and have done so since.

Since then I have been paying extortionate maintenance fees, and ground rent.

Every year I have been paying a whopping £200 ground rent for an apartment that is now worth only £55,000 on top of maintenance charges of almost £70 per month and not getting much for it.

I have now had a letter saying that the ground rent is increasing in line with the Retail Price Index to £274.77 that's a 37.08% increase. It states that they can do it every 10 years (although has only been built 7 years) and is in my lease.

Is this normal? Both my parents and in laws live in large detached houses in comparison and pay only £8 a year ground rent to some old dear down the road.

I feel trapped, I have lost nearly 50% equity since I bought the flat and am paying over £1,000 a year to maintain a £55,000 property!

My question is what has the Retail Price Index got to do with a residential apartment, and is a 37.08% increase justified?

Look forward to hearing some responses and many thanks for reading.

OP I am sorry to hear of your plight, did you read your lease when you bought your property or did your solicitor advice you off this.

We have about 2 months ago withdrawn from the purchase of a flat due to ground rent escalation at RPI. We noted it but our solicitor also informed us that the flat would become unsalable if the ground rent increase at this rate.

Ground rent escalation at RPI is normal with commercial property but unusual in residential property, the freeholder of the flat we were thinking of buying also managed the water and charged his rate, charged £100 for every tenancy change if let out and had other really money grabbing conditions.

So always read the lease carefully and understand it, not much use to you know but helpful to others.

For now, wait till the market in your area is frantic as it is now in my area, put it on the market when someone is desperate and hope they don't read the lease. Cruel but the only way you will get rid of the problem.

Freecall

Periodic increases in ground rent are normal, the exact period and valuation principles will be stated in your lease. On new builds ground rent and lease terms often start from before the first leaseholder takes up residence. Again, check your lease.

If the increase is greater than that set out in your lease you could appeal but from the sounds of things if it is only rising in line with RPI then you would have no grounds.

The RPI change will only return its value to where it was when the lease agreement was originally entered into.

In fact, over time, as pay rates tend to outstrip RPI you will find that the real costs fall so it will slowly cost less and less.

ognum

Freecall wrote: »

Periodic increases in ground rent are normal, the exact period and valuation principles will be stated in your lease. On new builds ground rent and lease terms often start from before the first leaseholder takes up residence. Again, check your lease.

If the increase is greater than that set out in your lease you could appeal but from the sounds of things if it is only rising in line with RPI then you would have no grounds.

The RPI change will only return its value to where it was when the lease agreement was originally entered into.

In fact, over time, as pay rates tend to outstrip RPI you will find that the real costs fall so it will slowly cost less and less.

You must be aware of different flat to me. In my experience ground rent in most properties , which goes to the freeholder, remains low and often fixed while service charge/management charge does rise according to the need to maintain the building.

If a lease is extended it can often take into account future ground rent costs and can be reduced to nil. Service charge will continue.

chris_m

ognum wrote: »

You must be aware of different flat to me. In my experience ground rent in most properties , which goes to the freeholder, remains low and often fixed

That is true, but not always the case.

There's some I've seen mentioned in this forum from time to time which double every so many years - with no limit on how many times it can happen. Compared to those, the OPs got lucky. At least his is only done by RPI, albeit ten years-worth of RPI in one go (assuming that the maths was correct of course).

Freecall

ognum wrote: »

You must be aware of different flat to me. In my experience ground rent in most properties , which goes to the freeholder, remains low and often fixed while service charge/management charge does rise according to the need to maintain the building.

If a lease is extended it can often take into account future ground rent costs and can be reduced to nil. Service charge will continue.

Bringing the service charge into it just runs the risk of confusing people.

The rent is the money paid to the landlord for the use of the land.

Many years ago (decades) some leases made no provision for increases but a modern lease will set out how this will increase. In the OP's case this appears to be RPI every 10 years. Sometimes it is other parameters over different time periods but it is invariably included somewhere.

If not then the landlord's current value return on investment would slowly diminish and over decades would effectively reduce to zero, which is what happened with some older tenancies.

evs50

I am currently renting a small house on the Elba estate in Gowerton, Swansea. There has been a 25 year ground rent review on the estate. Most of the properties have been paying £50 and a few larger houses as much as £90 per annum (our landlord pays £50). Our property is a mid-link house worth about 100-105k. There are 3-beds ranging in price from 130-170k and I can't imagine there are many, if any, over 200k. A road about 20 yards away (not part of the site) pay around £12 a year ground rent. Anyway the proposed rates have increased by a lot. Ours would be up from £50 to £604 and many others are multiple thousands. The biggest rise I've heard is £90 to £3200 per annum. Another lady I spoke to living in a semi-detached 3 bed said hers was rising from £50 a year to the equivalent of £43 a week!


I would be interested in people's thoughts on the matter. I have read a little bit about ground rent reviews and generally they seem to be double or triple every 25 years. We have also been looking at a house in the next village which is about the same age as the Elba estate, is a leasehold and has 80 years remaining of a 99 year lease. The ground rent is currently £80 a year but I don't want to find myself in the same boat as the Elba owners in 5-6 years time. Any info, help, thoughts and advice would be most welcome.


James


http://www.southwales-eveningpost.co.uk/Fury-rent-rise-motion-rejected/story-21253389-detail/story.html