Considering not exchanging due to Ground Rent Clause ...

London54

Hi,


I asked my solicitor to get an illustration of the ground rent from the Developer's solicitor over 5 review dates. They provided me with an illustration for one review date but say that they can't comment on any other review date after that or provide any further illustration.


This is arousing my suspicion about why they won't provide an illustration over a number of review dates. They are now also putting pressure on me to exchange by telling me that they will cancel the sale unless I sign.


The formula is revised rent = (Initial Rent * RPI index at time of review date)/ RPI index at the commencement date.


The vagueness comes around the meaning of initial rent. In the lease it says:


!!!8220;Initial Rent!!!8221; means the Rent referred to in the Particulars
!!!8220;Rent!!!8221; means until the First Review Date the Initial Rent and thereafter during each successive Review Period a sum to be determined in accordance with this clause


Let's assume the rent from year 1 to 10 is 400 and the revised rent from years 10 to 20 is 500.
I am trying to understand the "initial rent" value in the formula for the third review period is 400 or 500 (i.e. the revised rent for the previous period or the rent as of the commencement date.


The difference over time is significant .. here's my illustration over 5 review periods assuming that the growth in the RPI index is the same in each 10 years as it was between 2007 and 2017.



Year RPI Index Rent of prior period Initial Rent of constant 400
2007 204.4 400 400
2017 269.3 527.0058708 527.0058708
2027 334.2 861.6700687 654.0117417
2037 399.1 1682.44875 781.0176125
2047 464 3819.257435 908.0234834
2057 528.9 9882.608892 1035.029354
2067 593.8 28709.84912 1162.035225


Year RPI Index Rent in formula = Rent of prior period Rent in formula = Initial Rent of constant 400 2007 204.4 400 400 2017 269.3 527.0058708 527.0058708 2027 334.2 861.6700687 654.0117417 2037 399.1 1682.44875 781.0176125 2047 464 3819.257435 908.0234834 2057 528.9 9882.608892 1035.029354 2067 593.8 28709.84912 1162.035225

I've been told that this is a standard clause for ground rent but if the ground rent is being compounded in each review period then it reaches almost £4000 per year after 40 years. £28,709 after 60 years.


Would love to hear your views on why the solicitor won't provide an illustration, how this review clause compares to others and if the compounding is acceptable or even legal


Thanks

davidmcn

London54 wrote: »

Initial Rent means the Rent referred to in the Particulars

Where are the Particulars, and what do they say the rent is?

It can't mean the revised Rent as that just puts you in an infinite loop...

flower77g

It's not desirable and a number of building societies won't grant a mortgage if they notice this escalating clause. Maybe ask your solicitor to find out what price the freeholder requires to change this to a clause where the ground rent increases each year by CPI only. Resolving this properly will cause delay, I'm afraid.

London54

Hi davidmcn


I've asked my solicitor what the "particulars" means and all I can't get answer. This is why I am concerned as it is not clear to me what the rent in the formula will be after the first review date.


I know my ground rent starts at £400


The subtlety is in the definition of Initial Rent and Rent in the contract


!!!8220;Initial Rent!!!8221; means the Rent referred to in the Particulars
!!!8220;Rent!!!8221; means until the First Review Date the Initial Rent and thereafter during each successive Review Period a sum to be determined in accordance with this clause


The Revised Rent for any Review Period is to be determined at the relevant Review Date by multiplying the Initial Rent by the latest index value of the Index last published before the relevant Review Date and dividing the result by the Base Figure


I just don't understand why the Developers won't provide an illustration if this is a reasonable clause. Their "we have no further comment" responses is leading me to believe something isn't right.


Should I let them cancel the sale instead of signing without fully understanding this.

davidmcn

London54 wrote: »

I've asked my solicitor what the "particulars" means and all I can't get answer.

Probably a page at the front of the Lease which has your details, the property address, the initial rent, etc? After all, it must have a figure somewhere for the amount that the rent starts at.

London54

Hi davidmcn


It says that the rent is £400 on the lease in the first few pages. However, rent is redefined as per below in the clause used to revise the rent.


In the below clause it appears at first sight to be the initial rent revised at each review date by the inflation between the commencement date and the review date. However, if one looks at the definition of rent it could be interpreted as the rent from the previous period as opposed to the initial rent


I'm just puzzled as to why they would not shut this down by confirming if it is simply the initial rent (i.e. £400)








7. REVISION OF RENT


Definitions


7.1 In this clause


7.1.1 !!!8220;Base Figure!!!8221; means the latest figure for the Index published at the Commencement Date


7.1.2 !!!8220;Index!!!8221; means the Index of Retail Prices (All Items) published H M Government or any official publication substituted for it


7.1.3 !!!8220;Initial Rent!!!8221; means the Rent referred to in the Particulars


7.1.4 !!!8220;New Rent!!!8221; means the rent to operate for the relevant Review Period


7.1.5 !!!8220;Rent!!!8221; means until the First Review Date the Initial Rent and thereafter during each successive Review Period a sum to be determined in accordance with this clause


7.1.6 !!!8220;First Review Date!!!8221; means the tenth (10th) anniversary of the Commencement Date


7.1.7 !!!8220;Review Dates!!!8221; means the First Review Date and each and every successive tenth (10th) anniversary of the Commencement Date to the intent that (for the avoidance of doubt) the rent is reviewed every 10 years and references to a !!!8220;Review Date!!!8221; are references to any one of the Review Dates


7.1.8 !!!8220;Review Period!!!8221; means a period beginning on any Review Date and ending on the day before the next Review Date or the day before the end of the Term as the case may be and qualified uses of the term are to be construed accordingly


7.1.9 !!!8220;Revised Rent!!!8221; means the rent determined in accordance with this clause


7.2 New Rent


The New Rent shall be whichever is the higher of:


7.2.1 the rent payable under this lease immediately prior to the relevant Review Date and


7.2.2 the Revised Rent


and shall be payable from the relevant Review Date at the times and in the manner set out in this Lease


7.3 Revised Rent


The Revised Rent for any Review Period is to be determined at the relevant Review Date by multiplying the Initial Rent by the latest index value of the Index last published before the relevant Review Date and dividing the result by the Base Figure

davidmcn

London54 wrote: »

It says that the rent is £400 on the lease in the first few pages.

Ok, so that's the Initial Rent. Which will always be £400. So it is just a straightforward indexation calculation where it goes up every 10 years in line with the RPI.

No idea why your solicitors can't explain it to you properly but it's a problem with them rather than the Lease.