Onerous ground rent - deed of variation or lease extension

sad2k

I currently own a leasehold flat (in London) valued at ~330k with ground rent of 350 a year. I've been struggling to sell it (two sales falling through) due to a clause in my lease that causes the ground rent to increase every 21 years in proportion to the increase of the property value. In one case it was rejected by a buyer's lender and in the other one by a buyer's solicitor, I believe in both cases they would've been happy with grount rent review linked to RPI instead.

I now have an option of entering in a deed of variation with my landlord (not a freeholder, an intermediate leaseholder) to update the ground rent review rule to RPI, leaving everything else unchanged. This would cost me ~2600 + legal costs.

The other option is to take the statutory lease extension route, extending the lease by 90 years and reducing ground rent to peppercorn - I don't have the valuation yet but this would likely cost 10-15k or more ie significantly more expensive.

Now what I worry about is that the lender conditions around ground rent are getting stricter day by day and now apparently some lenders reject ground rent >0.1% of property value (which in my case it is) plus there's this potential 'assured tenancy' problem if the ground rent can ever exceed 1000  (which it apparently can starting at 350). So I can potentially fix my ground rent review rule with a deed of variation but then still face one of these other issues when it comes to the next sale.

Any idea how prevalent is this 0.1% of property value rule among lenders now and/or how likely is it going to become more widespread?

Same question about 'assured tenancy' - I heard it's possible to take out an insurance against that but then some lenders/solicitors might still reject straightaway?

Obviously leasehold extension would solve all this other ground rent-related issues but at a much higher cost.

Any thoughts/advice on how best to proceed?

anselld

If you can afford it I would go with the extension.  It normally adds more value than it costs and would certainly be the permanent solution to sale problems.

The other problem with RPI is that it is discredited as an accurate measure of inflation in favour of CPI.  There may come a time when it is also frowned on by mortgage providers.

blue_max_3

How long is left on your lease? If you're down below 80yrs, it is going to put many off. The 15k (if that's what it would cost) would be money well spent if you have it. I'm sure the two aborted sales have been very stressful for you.

sad2k

135 years left on lease so dont need extension for the sake of it

blue_max_3

sad2k said:

135 years left on lease so dont need extension for the sake of it

In that case, I'd definitely put it back on the market. Or at least tell the buyer that's what you intend to do if he can't arrange a mortgage.

D.L

When was the last reassessment to get to this £350 p/a and what was the property valued at at that time?

eddddy

sad2k said:

I now have an option of entering in a deed of variation with my landlord (not a freeholder, an intermediate leaseholder) to update the ground rent review rule to RPI, leaving everything else unchanged. This would cost me ~2600 + legal costs. 

So it sounds like there's a dialogue between you and your intermediate leaseholder.  So can you ask the intermediate leaseholder if they'd consider a zero ground rent variation as an option, and what price they would want - or maybe make them an offer? 

If they agreed, you could then market the flat with the option of an RPI ground rent, or zero ground rent on completion - with the price adjusted accordingly.

BUT... you need to trust your intermediate leaseholder to do this. You hear stories of 'rogue landlords' who say "I want £10k for the lease variation", then days before exchange of contracts for your sale, they say "Actually, I want £30k" - knowing that you won't want to lose your sale.

sad2k

D.L said:

When was the last reassessment to get to this £350 p/a and what was the property valued at at that time?

350 is an initial level in my lease, i bought at 230k, so 0.15% of value

sad2k

eddddy said:

sad2k said:

I now have an option of entering in a deed of variation with my landlord (not a freeholder, an intermediate leaseholder) to update the ground rent review rule to RPI, leaving everything else unchanged. This would cost me ~2600 + legal costs. 

So it sounds like there's a dialogue between you and your intermediate leaseholder.  So can you ask the intermediate leaseholder if they'd consider a zero ground rent variation as an option, and what price they would want - or maybe make them an offer? 

If they agreed, you could then market the flat with the option of an RPI ground rent, or zero ground rent on completion - with the price adjusted accordingly.

BUT... you need to trust your intermediate leaseholder to do this. You hear stories of 'rogue landlords' who say "I want £10k for the lease variation", then days before exchange of contracts for your sale, they say "Actually, I want £30k" - knowing that you won't want to lose your sale.

i dont think they are interested in doing zero ground rent, also all communication with them and especially their solicitors is super slow so not sure i'll be able to bear another round of informal negotiations

sad2k

any recommendations for the valuer and solicitor specialising in lease extensions around sw19ish london btw?

eddddy

sad2k said:

any recommendations for the valuer and solicitor specialising in lease extensions around sw19ish london btw?

I find that quotes from London solicitors are up to 3 times the amount of solicitors in 'lower cost' areas - so maybe get quotes from further afield as well. And you may only need a 'desktop' valuation, so the Valuer doesn't need to be nearby (unless it all ends up at a Tribunal).

I'm guessing the freeholder will be your 'competent landlord' for a lease extension. So you'll have 3 lots of valuation and legal fees to pay - your own, your intermediate leaseholder's, and your freeholder's. That might be a few thousand! (Which is why it's sometimes easier to offer a few thousand over the odds, to avoid those fees.)

It'll probably take between 6 months and 18 months to get a statutory lease extension sorted.