New-build - did we get screwed on the lease?

HWG

All,
Bought a flat last year which is a leasehold (naturally). I've since read about sneaky ground rent clauses that wind up with enormous charges and render the property worthless. Most of these were for houses up north, and seem to have escaped the attention of the buyers solicitor.

I've done the maths and I don't think mine is one of those - although I'm worried that it does seem a bit high. Details as follows:

Duration: 125 years
Ground rent: £350pa, doubling every 25 years.

As I understand it, this works out at about a 3%pa increase (with a ground rent of £5600 (!!) starting in 2116).
It seems broadly in line with inflation, and nowhere near the crazy sums mentioned in the news, but I can't shake the fear that I've made a huge mistake.

Thoughts?

POPPYOSCAR

I think the problem is when the property is sold on to investors.

From what I heard today the government are looking into this and the possibility of changing the law to protect leaseholders.

HWG

Yeah I've heard that. As I understand it though, even if the lease was bought up by a dodgy investment company, they couldn't alter the terms of the lease without our consent?

martinsurrey

HWG wrote: »

Yeah I've heard that. As I understand it though, even if the lease was bought up by a dodgy investment company, they couldn't alter the terms of the lease without our consent?

you are correct and doubling every 25 years is pretty standard, and will join the MILLIONS of properties with a similar term

the really scary ones double every 10
the scary ones double every 15
the eye brow raise ones double every 20
the bread and butter ones double every 25.

HWG

Phew! That's a relief. I had done plenty of Googling, but had been unable to get a picture of what a "normal" lease looked like.

kinger101

You've misunderstood the story. It relates to newbuild houses. Not flats. Buyers are told they can buy the leasehold later for a couple of thousand. A couple of years later, it's been sold to another company who now want much more for it.

I believe leaseholders who live in flats get right of first refusal on the freehold. People who live in houses don't. In any event, it's normal to buy a leasehold flat. With houses it isn't. So people attempt to buy them before the sell the house.

HWG

Cheers Kinger.

I did know that, but the story about the houses spooked me, and the somewhat-above-inflation increases made me wonder if I was in a similar (but less extreme) position.

Thanks for allaying my concerns, all.

AdrianC

HWG wrote: »

...but had been unable to get a picture of what a "normal" lease looked like.

A "normal" lease has a ground rent of zero or as close as makes no difference - it's termed a peppercorn rent, because it's often stated as being one peppercorn per year.

A statutory lease extension, once you've owned the property for two years, brings the ground rent down to zero.

ThePants999

I might be barking up the wrong tree, but my understanding is that the issues with freeholds being sold on to investors is not so much ground rents (which the investors obviously can't change without consent) as their other opportunities to squeeze money out of leaseholders, such as charging for consent for alterations.

HWG

Hi ThePants,
That's right - there are plenty of stories of onerous charges and dodgy deals (eg the management company paying extortionate amounts to a maintenance company which it also owns), but I'm less worried about them as you can at least challenge them, unlike the terms of the ground rent.

deFoix

There's a number of issues to consider:
1. extortionate service fees for regular and adhoc work
2. high ground rent
3. doubling of rents every x years (where x produces a significant rise in rental income for the leaseholder relative to a nominal discount rate/inflation)
4. Not having right of first refusal on leasehold houses.

I believe the law should be changed so that EEs have to provide info on 2 and 3 upfront as its vital for proper valuation of the property.