Ground Rent increase question

Calidad

Hi,

FTB here, and I’m looking to buy a new build leasehold flat (123 years left on the lease). My solicitor has just sent through details of the lease to me and I’m wondering what people’s thoughts are with regards to the following:

“(C) You are responsible to pay an annual rent of £250 per annum. This increases every ten years in accordance with the Sixth Schedule which basically means that the rent goes upby the amount of the Retail Prices Index, or the sum of £100,whichever is the greater.”

Obviously GR isn’t ideal anyway, but does this seem a reasonable increase? If I purchase the property, I will probably be looking to sell it in 5+ years or so, or rent it out financial situation permitting. But I’m concerned about sellabllity, future mortgage lenders taking it on etc.

Just a little context. I’m a FTB and going solo. I have a girlfriend who would plan to move in at the end of the year. We intend to make this our home (2 bed flat) for the next 5 years and then reassess, with the intention of selling/or renting it out as we buy a house together.

Thanks in advance.

da_rule

Unless the RPI goes through the roof then this is unlikely to result in doubling ground rent, which lenders are wary of. However the 10 year review period is quite short.

An option would be to wait until 2 years have passed and serve a lease extension notice (if you can afford the premium then). This will remove the ground rent altogether.

Calidad

da_rule wrote: »

Unless the RPI goes through the roof then this is unlikely to result in doubling ground rent, which lenders are wary of. However the 10 year review period is quite short.

An option would be to wait until 2 years have passed and serve a lease extension notice (if you can afford the premium then). This will remove the ground rent altogether.

Thank you for the reply. Reading a little more about it, it seems a little concerning. Although I’m aware it’s not in common on new(er) builds.

It’s very unlikely I’ll be in the flat for than 10 years, but I worry worry about a negative equity situation.

Do you think there is any prospect at all of negotiating this prior to exchange with the freeholder?

Is anyone else in a similar situation, or is already living with this type of set up? Unfortunately, wanting a 2 double bedroom property my budget (250,000) does not extend to many/any decent freehold properties that are either in a decent area or don’t need work doing to them.

davidmcn

It doesn't sound outrageous to me. The concerns have been largely about the leases which go up exponentially or with otherwise fixed increases which might bear no relation to inflation or property prices. Pegging the rent to RPI shouldn't be controversial (RPI isn't necessarily linked to the value of your property, but at least it doesn't give scope for debate and is a reasonable indicator of what the £ is worth).

The odd bit is the minimum increase of £100, which for the first review is equivalent to average inflation of about 3.4% - and inflation hasn't been that high for a while. But (assuming the £100 minimum isn't also indexed!) that becomes less significant for future reviews.

da_rule

You could always ask the seller to serve a lease extension notice and then assign it over to you. That way you could finish the process without having to wait the 2 years.