Leasehold in London: What do you think of this ground rent clause?

tomintoul91

Also worth checking page 21 of the recent government consultation ("Tackling unfair practices in the leasehold market - Summary of consultation responses and Government response", dated December 2017). where they considered this.

New Member so not able to post links unfortunately

AdrianC

tomintoul91 wrote: »

Also worth checking page 21 of the recent government consultation ("Tackling unfair practices in the leasehold market - Summary of consultation responses and Government response", dated December 2017). where they considered this.

New Member so not able to post links unfortunately

https://www.gov.uk/government/consultations/tackling-unfair-practices-in-the-leasehold-market

Consultation_doc wrote:

Section 4: Exempting leaseholders potentially subject to ‘Ground 8’ possession orders due to their level of ground rent


Q19: Should the Government amend the Housing Act 1988 (as amended by the Housing Act 1996) to ensure a leaseholder paying annual ground rent over £1,000 in London or over £250 in the rest of England is not classed as an assured tenant, and therefore cannot be issued with a Ground 8 mandatory possession order for ground rent arrears? If not, why not?


73. This question concerned a technical area of housing legislation. Over two-thirds of those that responded to this question in the online survey agreed that legislation should be changed. The general view, particularly from the legal profession, was that this area of the law should be addressed as quickly as possible and was an unfortunate consequence of increasing ground rents.


74. Respondents also pointed out that annual ground rent over £1,000 in London or over £250 in the rest of England is high and needed to be justified, and that Government should consider a lower figure since the disparity between London and the rest of England is also too wide.


Government response
75. The Government is aware that, where ground rents exceed £250 per year or £1,000 per year in London, a leaseholder is classed as an assured tenant. This means, for even small sums of arrears, leaseholders could be subject to a mandatory possession order if they were to default on payment of ground rent. The Government will take action to address this loophole and ensure that leaseholders are not subject to unfair possession orders.

I'd take that last sentence (their emphasis...) as being "don't worry, OP". £375 in London with 9 years until the next review is going to be at least 19, probably 29 years, before it hits £1k unless inflation goes silly. By that stage, this WILL have been reviewed, simply because it would be hitting a very large number of people.

hazyjo

burtbot1 wrote: »

If you're interested in an ex-local authority building, the ground rent are super cheap! Ours in a tenner a year....

Plus if you get one in a smallish block with no lift (ours is a block of 24) then the service charges are also really cheap and really reasonable. Ours in £800 a year, but we a get a refund of around 10-20% each year as they always overestimate costs.

Often not recommended on here. Local authorities are renowned for dropping enormous bills through letterboxes of private owners. Usually for re-painting, window replacement, roof repairs/replacement or other major works. Anything ex-LA with a lift, I def wouldn't touch with a bargepole. Expect that to be several thousand at a time. We've had several posts re this, and I've always advised against ex-LA for that reason.

tomintoul91

AdrianC wrote: »

I'd take that last sentence (their emphasis...) as being "don't worry, OP". £375 in London with 9 years until the next review is going to be at least 19, probably 29 years, before it hits £1k unless inflation goes silly. By that stage, this WILL have been reviewed, simply because it would be hitting a very large number of people.

Completely agree! Let's hope lenders also see it that way

Tom99

[FONT=Verdana, sans-serif]You can always buy out the ground rent, either now if the seller has owned for 2yrs or in 2yrs time.[/FONT]
[FONT=Verdana, sans-serif]If the ground rent was fixed at £375 then the cost of buying out might be c£6k but with a min increase of 4.1%pa every 10yrs the cost will likely more then double say £15k.[/FONT]
[FONT=Verdana, sans-serif]Plus the value of the reversion and fees on top of that.[/FONT]
[FONT=Verdana, sans-serif]The proposed leasehold reform legislation, if it comes about, should make it easier to buy out the ground rent and [/FONT][FONT=Verdana, sans-serif]maybe[/FONT][FONT=Verdana, sans-serif] cheaper.[/FONT]

wjchoihk

I think MAX (150%, RPI) every 10-year is better than doubling 10 yearly. But your lease clause is not on a better side definitely. Is it a new flat being built? If so ask them how much they have sold. I guess it will be very slow with that clause.

When I checked several new developments recently in my suburban London area, they were mostly 10 year RPI with start rent of 200-500, some 15 yearly RPI-indexed with start of 300. These are acceptable to most lenders for mortgage and I guess yours might be so as well.

But again minimum 50% of increase looks expensive given the fact that historical 10 year RPI increase has been 30-35% and this will make statutory lease extension quite costly - in the region of 20K or higher I guess. So if you really like the flat, go ahead and use this to get further price down.

Okrib

This sounds like the sort of clauses the Cadogan Estate put in their leases (along with lovely things like having to pay 50% of the uplift in case of any works increasing the value of the flat).

On the face of it it does not look too unreasonable but it's the uncertainty I would not like - and I suspect your solicitor / mortgage company might feel the same way.

Smi1er

burtbot1 wrote: »

If you're interested in an ex-local authority building, the ground rent are super cheap! Ours in a tenner a year....

Plus if you get one in a smallish block with no lift (ours is a block of 24) then the service charges are also really cheap and really reasonable. Ours in £800 a year, but we a get a refund of around 10-20% each year as they always overestimate costs.

I looked at an Ex-LA flat. Windows were to be renewed in 2020. 4 average size windows, 1 small window and a back door. Budget £4,200:rotfl:

I know someone who has a 2 bed flat in a block. New Windows and Roof, £29K:eek:

hazyjo

Smi1er wrote: »

I looked at an Ex-LA flat. Windows were to be renewed in 2020. 4 average size windows, 1 small window and a back door. Budget £4,200:rotfl:

I know someone who has a 2 bed flat in a block. New Windows and Roof, £29K:eek:

From my experience, the actual bill for major works is usually way more than first anticipated, so those figures could actually have increased.


(May have missed this so just ignore me if so, but it may not even be down to you - if your lender doesn't like it, they won't be lending. Especially if you have a small deposit.

burtbot1

hazyjo wrote: »

Often not recommended on here. Local authorities are renowned for dropping enormous bills through letterboxes of private owners. Usually for re-painting, window replacement, roof repairs/replacement or other major works. Anything ex-LA with a lift, I def wouldn't touch with a bargepole. Expect that to be several thousand at a time. We've had several posts re this, and I've always advised against ex-LA for that reason.

Ah yes, good point! We actually checked that all the windows were quite new when we looked around and as it’s a small block with around 50% ownership we figured if wouldn’t be too bad if anything needed doing, which of course is still a risk.
Having said that, if you offset the massive difference in what you’re paying for service charge and ground rent compared to a private block, it could still be considered a ‘saving’.
But I would absolutely advise against buying a flat in a massive ex LA property and one with a lift. And a dilapidated one!