Lease Discombobulation

annetheman

Hi there,

I'm reading my Lease agreement (yet to sign) and wondered if anyone would be able to help me figure out what the ground rent increase will be in 10 years, if possible by using a practical example?

The exact wording is in the Lease:

Pretending today is the Ground Rent Review Date 10 years from now:
Ground Rent = £150.
All Items index value of the RPI for the month two months before today = ???
All Items index value of the RPI for the BASE RPI Month = ???

All I have right now is 150 x ??? / ??? = Indexed Rent?

Can anybody make it make sense? Thank you!

eddddy

Firstly, you need to look in the lease for a definition of 'the Base RPI Month' - it's probably the month the lease began (or will begin, if it's a new lease)

For the sake of an example, let's say the Base RPI month is August 2010.

If you look at this chart: https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/chaw/mm23

• you'll see that "All Items index value of the RPI for the BASE RPI Month" (August 2010) is 224.5
• and you'll see that "All Items index value of the RPI for the month two months before today" (June 2020) is 292.7
  
  

So  292.7 / 224.5 = 1.304
So RPI (or 'inflation' or 'cost of living') has gone up 30.4% over the last 10 years - so your ground rent would go up by 30.4% as well.

AdrianC

Nobody can say what inflation will be over the next ten years.
They can tell you what it'll be over the last ten years...
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/chaw/mm23

When was the "base month", last time it was revised?

anselld

It is impossible to know what RPI will do over 10 years, but basically the ground rent increases every 10 years based on the cumulative RPI increase.  Basically ground rent is adjusted in line with RPI inflation.

The risk comes when the ground rent eventually increases above £250 as the lease becomes an assured tenancy and mortgage companies don't like that, or the threat of that.

annetheman

Thanks everyone, apparently 10 years ago it was 244.2/237.9 - nobody can predict what it'll be in 10 years but good to have an idea of the change in the past 10, and how to work it out. I don't know what the base month is... It's a new lease and I haven't signed it yet so I guess it'll be when I sign it, probably around September 2020.

Good to know about "the £250 ground rent problem" - gosh, leasehold is a mess, isn't it??!

Much appreciated.

AdrianC

annetheman said:

Thanks everyone, apparently 10 years ago it was 244.2/237.9 - nobody can predict what it'll be in 10 years but good to have an idea of the change in the past 10, and how to work it out.

And it's currently 292.7

So you say you're starting at £150.
Divide by the start figure : 100 / 244.2 = 0.61425 
Multiply by the end figure : 0.61425 x 292.7 = £179.79

I don't know what the base month is... It's a new lease and I haven't signed it yet so I guess it'll be when I sign it, probably around September 2020.

It'll be the start date of the new lease. That might be when you complete your purchase, or it might already have been set up for all the properties on the development at once as part of the preparations for sale.

annetheman

AdrianC said:

annetheman said:

Thanks everyone, apparently 10 years ago it was 244.2/237.9 - nobody can predict what it'll be in 10 years but good to have an idea of the change in the past 10, and how to work it out.

And it's currently 292.7

So you say you're starting at £150.
Divide by the start figure : 100 / 244.2 = 0.61425 
Multiply by the end figure : 0.61425 x 292.7 = £179.79

I don't know what the base month is... It's a new lease and I haven't signed it yet so I guess it'll be when I sign it, probably around September 2020.

It'll be the start date of the new lease. That might be when you complete your purchase, or it might already have been set up for all the properties on the development at once as part of the preparations for sale.

Thanks that's very helpful! 
It is the start of the date of new lease, solicitor has finally gotten back to me!