Ground rent lease terms causing purchase problems

ljs_1985

Hi there

im in the process of buying the final share of my shared ownership property and my existing lender (nationwide) agreed to lend me the remaining amount. As I was about to complete they found a clause in my lease which has led them to withdraw their offer. The clause is around ground rent and states that as head leaseholder my ground rent will be £250 but every 5 years it will be reviewed and is index linked. 

I’ve done a lot of research on this and it seems as though ground rent clauses are a common issue with new builds and more mortgage lenders are becoming strict around them. The government are trying to get increasing ground rent abolished too however my freeholders management company won’t budge on it and refuse to change the clause.

Im struggling to find lenders who will accept it, and even if I do my existing lender nationwide have said that if I move before my fixed rate ends they will still charge me a £5k exit fee even though they are refusing to lend to me.

i guess I have a couple of points I’d like some advice on

1) Does anyone know anything about the ground rent clause and whether I stand any chance of having this changed?
2) Can nationwide charge me the exit fee if it’s them who is refusing to lend to me?
3) Do I have any chance of taking action against my original solicitor and the housing association as I feel that I should have been made aware that if I ever wanted to staircase you 100% that this clause would come into effect 

At the moment it feels like I’m stuck as I can’t purchase 100% because no one will lend to me

SeanG79

How many years are left on the lease? How long have you lived in the property? If more than two years, you can look to extend the lease and if you go the formal route, this will remove ground rent. It wont be a quick solution. 

princeofpounds

SeanG79 said:

How many years are left on the lease? How long have you lived in the property? If more than two years, you can look to extend the lease and if you go the formal route, this will remove ground rent. It wont be a quick solution. 

Unfortunately, this is the trap in shared ownership (seems to pop up on here increasingly in recent months). Often you have no right to a statutory extension of the lease unless you staircase to 100% first. Chicken and egg situation, although it depends on the policy of the housing association - some allow extensions without 100%.

28tsw

It’s not up to them it’s up to the headlease holders. I’m in the same situation but choosing to sell my share instead (which has its own different problems) but if we staircased up it’s to buy headlease which has ground rent increases every 5 years with RPI and is already over £250. If I staircase I’d start the headlease ownership from scratch despite having lived here 6 years as I am the new owner of all the property but the lease in question does not belong to the housing association- it’s their landlord that owns it. 

Salemicus

1) Does anyone know anything about the ground rent clause and whether I stand any chance of having this changed?
Yes, but you will have to pay. You can do this either by statutory extension of the lease, as SeanG79 mentions, or by negotiating with the freeholder. Either way, you'll have to compensate the freeholder for the reduction in ground rent, and for the costs involved in making the change. How much did you offer to pay the freeholder in exchange for cancelling the ground rent?

2) Can nationwide charge me the exit fee if it’s them who is refusing to lend to me?
Of course. Nationwide aren't obliged to lend additional money to you.

3) Do I have any chance of taking action against my original solicitor and the housing association as I feel that I should have been made aware that if I ever wanted to staircase you 100% that this clause would come into effect
Anything is possible, but it doesn't seem like the way to go.

ljs_1985

I have 118 years left on the lease and have lived there for 6 years so it sounds like extending the lease could be an option although i've done a bit of research and it sounds expensive so may not be a possibility right now.

I'm wondering whether my original solicitor or the Housing Association should have warned me about this when i initially purchase my 75%? The ground rent isn't in my current lease as i'm not the Head Leaseholder at the moment and i feel like i should have been told that if i wanted to staircase to 100% that this could be an issue.

princeofpounds

You cannot change the ground rent clause without the HA agreeing or pursuing a statutory lease extension.

Yes, Nationwide can charge you an exit fee if you leave before the end of your fixed term.

No, you cannot make a case against your solicitor or the HA. They told you about the ground rent. The problem is the changing policies from mortgage lenders, which are not predictable in advance and not in their control.

The basic problem your lease has is this: 

https://www.mishcon.com/news/publications/real_insights_-_property_update_05_2017/assured_tenancy_traps__the_unexpected_ast_05_2017#:~:text=Today%20ground%20rents%20can%20be,and%20will%20be%20an%20AST.&text=This%20may%20lead%20to%20ground,inflation%20in%20the%20long%20term.

princeofpounds

ljs_1985 said:

I have 118 years left on the lease and have lived there for 6 years so it sounds like extending the lease could be an option although i've done a bit of research and it sounds expensive so may not be a possibility right now.

I'm wondering whether my original solicitor or the Housing Association should have warned me about this when i initially purchase my 75%? The ground rent isn't in my current lease as i'm not the Head Leaseholder at the moment and i feel like i should have been told that if i wanted to staircase to 100% that this could be an issue.

It will not be that expensive if you have 118 years left. A leasehold extension calculator will tell you the value. But as I stated, you are not be eligible to use the statutory process and so it will depend on negotiation with your freeholder.

What do you mean by 'the ground rent isn't in my current lease as i'm not the Head Leaseholder at the moment'. Are you saying that the housing association is a headlease holder, that the freeholder is someone else entirely, and that you in fact a sublease holder? That would change things again.

28tsw

Some shared ownership are still leasehold when bought in full - which it sounds this one is - and when you buy it in full and own the headlease it doesn’t matter how long you have lived there, the two year wait to be able to buy your freehold starts again.