Leasehold in line with RPI

ryankirkpatrick2

I am in the process of buying a leasehold house. The lease has 991 years left and ground rent is currently £200 per year. The lease states that the ground rent will increase in line with RPI divided by the base index and rounded to the nearest £5. The rent is due to increase in 2021, RPI for the past 10 years is currently at 30%. What does this mean? What is base index? Before we put an offer in we were told by the seller that the freehold would be around £4000 to buy however we have now been quoted £5700 plus legal fees to purchase the freehold from the management company. What should I do? Is this ground rent increase acceptable? Should I try to negotiate money off the purchase price to buy the freehold as we were misinformed? Thanks.

davidmcn

ryankirkpatrick2 wrote: »

What is base index?

It's defined in the lease - which we can't see from here. It's probably whatever the RPI index was at the start of the lease.

The way it should work is that if the RPI has gone up 30% over ten years then the rent will go up 30%.

ryankirkpatrick2

Thanks David. Is the RPI increase something to worry about? The seller has only sent me a small snippet of the lease after me asking to see it three times over the past two weeks. Don’t understand why he hasn’t just sent the whole thing as my solicitor will need to see it before exchanging contracts anyway. I feel that because I have been misinformed that I either want to pull out of the purchase (even though I’ve already paid a £500 reservation fee and solicitors fees) or ask for them to go halves on buying the freehold ie reducing the house price by half the freehold cost. They are putting pressure on us to complete by the end of June but I need this all sorted before we even think about completing.

AdrianC

RPI is Retail Price Index - it's one of the measures of inflation.

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23
allows you to calculate it over any historic period.

The "index" figure is published monthly - it was 100 in January 1987, and was 285.1 as of March 2019 - the April figure is due in a week or so.

So let's say that it's a once-every-10yr increase that's due to go up tomorrow.
March 2009 RPI was 211.3
285.1 / 211.3 = 34.92% increase.
So if your ground rent was set to £100 this time ten years ago, it will now go up to £134.92.

ryankirkpatrick2

Thank you, I feel that we may have to pull out of the purchase. If we ask the seller to buy the freehold before we buy the house can he then pass the freehold onto us after he receives it?

AdrianC

But going back to your original questions...

ryankirkpatrick2 wrote: »

Before we put an offer in we were told by the seller that the freehold would be around £4000 to buy however we have now been quoted £5700 plus legal fees to purchase the freehold from the management company. What should I do?

For that, I'd buy the freehold. No-brainer.

Is this ground rent increase acceptable?

There's a poster here who's recently popped up shouting that RPI increases are "onerous". Nobody much else thinks that, including the Council of Mortgage Lenders.

Remember, RPI is inflation. But inflation goes up all the time, so the important figure - the amount you pay out in total - is less than an inflationary increase, because the increases lag behind general inflation by up to ten years... Wouldn't you be happy to still be paying 2011 prices for everything else in your life for another year and a half?

Should I try to negotiate money off the purchase price to buy the freehold as we were misinformed?

£4k may well have been the figure the last time the seller asked. They don't set the price. It's either calculated by a formula set in law, or by the current freeholder. Of course legal fees will always need to be paid...

csgohan4

The seller won't buy the freehold, what's in it for them, plus it's expensive.


Personally I don't buy leasehold houses, too much hassle and endless service charges etc