Buying a flat with ground rent review clause

ad3a

Dear all,

we are in the process of buying a flat with a 999 years lease (993 years left), which has a ground rent clause which states the ground rent (currently at 350pa) will be reviewed every 25 years "according to the value of the block" (don't remember now the exact wording, but this is the only criterion specified in this clause).
Our solicitor generally observed that the ground rent not being fixed can imply that in the future it can be extremely costly thus affecting resaleability, but from this clause, I think that any ground rent clause review can't be completely arbitrary or unreasonable or unfair, as it has to be linked to the current value of the flats in the block (it's not an arbitrary multiplier or anything like that). Currently, the ground rent is well below the 0.1% wrt the value of the property which seems to be the criteria adopted by Nationwide to deem a ground rent "unfair".

What do you think? Is this something for which you would walk away from the process? We are first time buyers so zero experience on this front.

Thanks!

davidmcn

In principle there shouldn't be anything wrong with a review which is somehow linked to property values in general. Depends on the wording of the clause though as sometimes they are a bit more sneaky/one-sided than that.

ad3a

Thanks for the feedback. The actual wording used is this:
"The rent shall be increased (if appropriate) on each Review Date to such amount as is the same percentage of the Review Value of the Block as Three Hundred and Fifty Pounds is of the First Value of the Buildings".

I personally think this is not particularly worrying. (Review Date is every 25 years)

davidmcn

Depends on the definitions of Review Value and First Value...

ad3a

Managed to find those as well:

First Value: "the total of the open market selling prices achieved by the landlord of all the dwellings in the buildings"

Review Value: "the total of the open market selling prices which could be achieved by the landlord on a sale in the open market with vacant possession of all the dwellings assuming each dwelling is being sold individually"

Thanks again!

Tom99

[FONT=Verdana, sans-serif]Presumable you are paying £350,000+ then?[/FONT]
[FONT=Verdana, sans-serif]In which case £350pa with a review every 25 yrs, the first in 19yrs time, does not sound to onerous.[/FONT]
[FONT=Verdana, sans-serif]You can always buy out the ground rent if it troubles you, either now if the seller has lived their 2 yrs or after you have owned the flat for 2 yrs.[/FONT]
[FONT=Verdana, sans-serif]A couple of reasons to delay is that the price is not going to increase because of the diminishing term, 993yrs, 990yrs or even 900yrs, it will make no difference. The price though might go up slightly if values increase and the next ground rent review will be closer.[/FONT]
[FONT=Verdana, sans-serif]The 2nd reason is that consultation is currently underway about the Government's proposals for lease extension reform and when enacted this may reduce the price you might pay. Its possible formulas for valuing ground rent will be fixed and legal and surveying fees for both parties, currently all paid buy the leaseholder, reduced or capped.[/FONT]