Just been offered to change my ground rent doubling clause which happens every 15 years to inflation

anselld

Comms69 wrote: »

Well inflation is not going to be in effect 100% in 15 years, so yes it seems to be a good deal.

That equates to an inflation rate of 4.7% so it is unlikely based on recent history but far from impossible.

Smellyonion

I would want a fixed peppercorn rate. Rpi could become a mess in times of economic meltdown.

saajan_12

pinkfloyd198 wrote: »

I have Just been offered by my freeholders to change my ground rent doubling clause in my lease which happens every 15 years to change by retail price index (I believe its the same as inflation) instead.

Key question: is the new proposal to
a) revalue every 15 years but use the change in inflation over that 15 years instead of a fixed double; OR
b) increase annually by the year on year inflation

Comms69 wrote: »

Well inflation is not going to be in effect 100% in 15 years, so yes it seems to be a good deal.

anselld wrote: »

That equates to an inflation rate of 4.7% so it is unlikely based on recent history but far from impossible.

Yes if inflation was avg 4.7% over the 15 years then that is equivalent to a 100% increase or doubling IN YEAR 15. The difference is by doubling every 15 years, its still at the lower rate in years 0-14 whereas in the case of (b) above, you pay some of the increase every year in between.

If (a) the break even would be inflation @ 4.7% average ie for year 0-14 you pay current ground rent, then in year 15 its revalued by the change in inflation over 15 years, ie
start inflation x 104.7% ^ 15 = start inflation x 200%

If (b) the break even for a 75 year lease is inflation @ 4.1% average. Say the starting ground rent is GR, then the total ground rent increasing by 4.1% pa would be GR x (1-1.041^75)/-0.041 = GR x 465.01. The total ground rent doubling every 15 years would be GR x (15 + 30 + 60 + 120 + 240) = GR x 465

For (b) you'd need to clarify the proposed lease length for an accurate calculation. Then you can decide whether you think inflation will exceed the break even or not ON AVERAGE. For background, in the last 30 years inflation has been ~3-4% baring a few outliers. In the 30 years before that, inflation has averaged 5-10% and even reached 25%.

That's the maths.. there's also the general wariness of doubling ground rents by people who may not understand whereas increasing by inflation may seem "more fair" and so more likely to sell.. or inflation may spike when you come to sell.. who knows!

SmashedAvacado

Smellyonion wrote: »

I would want a fixed peppercorn rate. Rpi could become a mess in times of economic meltdown.

They are unlikely to agree to that

The point with adjusting to inflation means that it will remain as affordable as it is today forever into the future. It seems like a fair deal and will help you shoudl you need to sell or remortgage the property before the new laws come in (if / when they do)