Ground Rent Clause Help

brummyuk

Hi All,

Thinking of buying a flat with a long lease and it has a ground rent clause that seems reasonable, just want to see if anyone can see any hidden snags. It's currently £50 and will be reviewed in 2025

'Every 22 years

the ground rent will increase in percentage terms matching the increase in percentage terms the total open market value of all selling prices of all the dwellings in the block would be achieved on a vacant possession sale without encumbrances and that to assume each dwelling is being sold individually, and it's sale is not held up by other sales of other dwellings in the block. Compared to the blocks original value'


To me it seems to be saying that basically the ground rent will go up by the percent the going rate of the value of the sum of all properties (The selling price of a flat has gone up about 40% since they were built) has since they were first built. My only wonder is does the wording open it up to a valuation of the land if a developer offers to buy all of properties to knock them down and build a skyscraper on the land?(plausible or not) It's a block of flats in the city centre that's 5 storeys high, but they have parking and open areas between them and other blocks of flats.

Cheers,

D_M_E

Personally I would not touch it.

There is no fixed amount by which the ground rent rises and as I read it they could just pluck figures out of the air and use them.

Also prices in some areas have doubled or even trebled in some areas which would mean a massive increase in ground rent.

Will they get valuations of every property or just look at those sold, and what happens if values go down as they sometimes do - would the ground rent fall as well, or continue to rise?

brummyuk

I wouldn't mind if the property doubled in value (as I'd benefit from the doubling in value), and the ground rent doubled. I'm more worried if it's open to abuse and sticking some arbitrary value to it. My solicitor thinks its ok, as legally it should be based on a realistic value of the property and a developer would not pay over the market value for a property if they didn't have too.

The ground rent wouldn't fall, but it wouldn't increase. Currently the flats are 30% more than when first built in 2002 if I read the clause correctly and it was applied today it would be £70 for the next 22 years. But any peoples ideas on if i'm interpreting it correctly would be great.

But then again I have no idea how competent my solicitor is.

eddddy

A rising ground rent can impact the cost of a lease extension, and will impact the cost of buying the freehold...

Of more concern is where the ground rent increases to a percentage of say open market value. Or doubling every 10 years or at more frequent intervals. The resulting annual ground rent may have an impact on the marketability and mortgagability of the lease.

A large ground rent or the potential for high increases during the term would most likely increase the premium payable for a lease extension or freehold purchase. The latter can arise whether you are buying the freehold of a leasehold house or of a block of flats with your fellow leaseholders.


http://www.lease-advice.org/article/ground-rent-and-its-escalation/

brummyuk

That's a bit different that's saying it increases by a percentage of open market value, so for example
.25% of the property value every ten years so £500 quid for a £200,000 property. That is bad as in another ten years, if the property is still around £200 000 you would add another £500 or more to your ground rent.

This clause is saying the percentage difference in value will be applied to the ground rent.

a £100 000 flat is now £150000 flat it's gone up 50%
The ground rent of £50 is increased by 50% and is now £75.
if in ten years it was still £150,000 the percentage increase since the last review would be zero and the ground rent would remain unchanged.

The danger would be if they can somehow put an unrealistic value on the property, and that's what I'm unsure of legally.

Cheers.

davidmcn

Does the deed go on to have a mechanism for determining the open market value / rent in the event of a dispute? e.g. referral to an independent expert/arbiter?