Ground rent doubles every 15 years

fridaysc

Hi, I am in the process of buying a flat and have just received the contract. The flat is Ann an old converted building with 6 other flats. The ground rent is £200 per annum and doubles every 15 years. The lease will have 125 years remaining when I complete the purchase. Can somebody please advise me about this? It seems like a fair price right now but could escalate quite high in years to come. I've worked it out for the remainder of the lease the payments would be;
Year 1 £200
Year 15 £400
Year 30 £800
Year 45 £1600
Year 60 £3200
Year 75 £6400
Year 90 £12800
Year 105 £25600
Year 120 £50200

Even accounting for inflation this seems excessive. I really would appreciate any advice or thoughts.

elverson

That works out as a 4.7% compound rise per year over the 120 years. For comparison the government's target for inflation is 2%. Of course the building may not still be standing in the year 2137.

[Deleted User]

Have you never heard the fable of the wise old sage who does the king a favour? The king is so pleased he tells the sage he can have whatever he wants in return, so the sage produces a chess board:

"I'd like you to put one grain of rice on the first square, two on the second, four on the third etc., until all 64 squares are full"

The king just laughed because he thought it was the sage who was the idiot.

TrickyDicky101

fridaysc wrote: »

Hi, I am in the process of buying a flat and have just received the contract. The flat is Ann an old converted building with 6 other flats. The ground rent is £200 per annum and doubles every 15 years. The lease will have 125 years remaining when I complete the purchase. Can somebody please advise me about this? It seems like a fair price right now but could escalate quite high in years to come. I've worked it out for the remainder of the lease the payments would be;
Year 1 £200
Year 15 £400
Year 30 £800
Year 45 £1600
Year 60 £3200
Year 75 £6400
Year 90 £12800
Year 105 £25600
Year 120 £50200

Even accounting for inflation this seems excessive. I really would appreciate any advice or thoughts.

At what date did the lease commence (note this may well be materially different from when you will complete purchase of the lease)?

fridaysc

The lease dates back to 1984 but is being renewed as part of the purchase.

da_rule

If they are going down the statutory renewal process then they cannot charge ground rent.

fridaysc

Sorry, don't understand, can you explain?

boliston

elverson wrote: »

That works out as a 4.7% compound rise per year over the 120 years. For comparison the government's target for inflation is 2%. Of course the building may not still be standing in the year 2137.

If a building collapses or is demolished would ground rent still be payable? After all it is rent to cover the ground the building occupies (or did occupy) surely?

da_rule

fridaysc wrote: »

Sorry, don't understand, can you explain?

If the lease extension is being granted under the Leasehold Reform Housing and Urban Development Act 1993 then the new lease has to be at a peppercorn ground rent (i.e. nothing).

boliston

da_rule wrote: »

If the lease extension is being granted under the Leasehold Reform Housing and Urban Development Act 1993 then the new lease has to be at a peppercorn ground rent (i.e. nothing).

Would a landlord ever offer a lease extension with such a low ground rent, and if they did surely it would mean they would massively inflate the extension cost to cover loss of income?

da_rule

boliston wrote: »

Would a landlord ever offer a lease extension with such a low ground rent, and if they did surely it would mean they would massively inflate the extension cost to cover loss of income?

It's not about them offering it is what a leaseholder is entitled to under the legislation. This is one of the reasons some landlords offer to 'help' leaseholders by extending the lease outside of the legislation.

If you go down the statutory route then part of the premium payable to the landlord does include the loss of ground rent based on the ground rent in the current lease.