£250+ ground rent AST threshold

ikanoi

Hi all, I have posted this in other threads so sorry if you've seen this comment recently but wanted to start a discussion specifically for this issue.

I'm a first time buyer and am in the process of buying a new build flat. I was just sent a copy of the draft lease and the ground rent is £245 (0.1% of purchase price) with reviews every 10yrs, linked to RPI and no cap.

This seems like a pretty standard agreement from what I've read but does anyone have any comments or experience regarding ground rents of £250+ being classed as an AST (were outside of London where the cap is £1000)?

Our next review will likely take us over this threshold and it feels like we're essentially paying hundreds of thousands to be no better off than tenants. It seems like such a glaring oversight in the law. Any thoughts would be appreciated!

Comms69

It's £250, if that's a hardship, dont buy leasehold (in fact, dont buy fullstop)

ikanoi

Comms69 said:

It's £250, if that's a hardship, dont buy leasehold (in fact, dont buy fullstop)

Did you read the article? The cost is not an issue, waiving our rights as homeowners is...

Comms69

ikanoi said:

Comms69 said:

It's £250, if that's a hardship, dont buy leasehold (in fact, dont buy fullstop)

Did you read the article? The cost is not an issue, waiving our rights as homeowners is...

So dont buy it.... I'm unsure how that wasn't clear.

ikanoi

Comms69 said:

ikanoi said:

Comms69 said:

It's £250, if that's a hardship, dont buy leasehold (in fact, dont buy fullstop)

Did you read the article? The cost is not an issue, waiving our rights as homeowners is...

So dont buy it.... I'm unsure how that wasn't clear.

So much for a discussion forum. Someone woke up on the wrong side of the bed today, didn't they?

Comms69

ikanoi said:

Comms69 said:

ikanoi said:

Comms69 said:

It's £250, if that's a hardship, dont buy leasehold (in fact, dont buy fullstop)

Did you read the article? The cost is not an issue, waiving our rights as homeowners is...

So dont buy it.... I'm unsure how that wasn't clear.

So much for a discussion forum. Someone woke up on the wrong side of the bed today, didn't they?

I'm not sure what your question is? 

rachlikeswinter

£245 p/a right now is fairly standard. I'm buying a flat currently with £250 p/a and it doesn't bother me in the slightest. Comes with the territory. If the next review is in 10 years, and is linked with RPI, I wouldn't worry? Are you even going to still own it in 10 years? No one knows what RPI will be then, but currently it's 0.5% I believe. That would mean your ground rent would go up to £246.22. If RPI is 3.6% (2017 figure), it would be £253.82. Unless it's a specific percentage point plus RPI? Either way, not a huge hike surely. The ones to worry about are doubling multipliers but this doesn't sound like that.

The article you posted is fairly longwinded but as far as I'm aware, just don't fall into arrears on any ground rent you owe and there's nothing to worry about? Tbh It would be pretty dire if you couldn't afford ~£250 a year, my mortgage would be the first of my worries if money became that tight!

At the end of the day, you buy it or you don't. Good to have the facts but I wouldn't say £245 is out of the ordinary these days.

eddddy

ikanoi said:

This seems like a pretty standard agreement from what I've read but does anyone have any comments or experience regarding ground rents of £250+ being classed as an AST (were outside of London where the cap is £1000)?

I can't find any cases where a freeholder has got an order of possession in the circumstances that you're talking about.

So I'm not sure that it has ever been tested in court, to see if a court would actually grant possession. At this stage, it seems that some lawyers have read through the 1988 Housing Act and think that it's a hypothetical possibility. (It's an unforeseen and unintended possibility - it's pretty clear that Parliament never intended the law to be used in this way.) However...

• I guess that you can protect yourself, by setting up an annual standing order to pay the ground rent.

• Also the law states that ground rent is only payable, once you've been sent a bill in the correct format. Also the law says that the bill must be sent between 30 days and 60 days before the ground rent is due.

• Then the ground rent has to be overdue by 3 months, before the freeholder can apply to a court for an order of possession.

• On top of that, if you haven't paid after the 3 months, court papers will be sent to you well in advance of the court case. As long as you pay the ground rent before the court date (or pay part of it, so the arrears is less than £250), the court won't grant a possession order,

So maybe it's not too risky.

But some people talk about withholding their ground rent as a protest against their freeholder, and planned to air their protest in court. In this case, that could be catastrophic! They might lose their flat. So you should never withhold ground rent.


And as I said in your other thread, it's very likely that the law will be changed to remove this anomaly before your next ground rent review.

princeofpounds

It is a stupid and (presumably) unintended side effect of the Housing Act 1988. 

It didn't used to matter much, but lenders seem to have woken up in the last few years and decided that they were no longer comfortable with the risks, and so many will now refuse to lend on such a property. I presume there was either some kind of further test case that went through, or it's a consequence of the tightening regulatory culture since the 08 crash - I keep meaning to find out.

See here for an explanation for those that haven't come across this before: https://www.mishcon.com/news/publications/real_insights_-_property_update_05_2017/assured_tenancy_traps__the_unexpected_ast_05_2017#:~:text=Today ground rents can be,every ten years or so.
https://nearlylegal.co.uk/2018/09/when-a-long-lease-is-a-shorthold/

It is likely to get corrected at some stage - I believe legislative proposals are already on the table - but government is slow and unresponsive, as it always is (all parties, given this has been going on for years). Lobby your MP, if you like.

The lease arrangement the OP describes is clearly designed to do two things:
1) maximise the amount of ground rent payable, whilst still keeping the property mortgageable. It's just taking the opportunity for a second bite of the cherry.
2) effectively compel the leaseholder to enfranchise or extend the lease (and thereby remove the ground rent) before the next remortgage after the next ground rent review, assuming that the legislation has still not changed yet.

OP - you are much better off than AST tenants (and don't forget, in a leasehold you ARE tenants, just a type with very special and powerful rights). You know, there is that decades of security of tenure thing you shouldn't overlook in your comparisons...

Anyway, I wouldn't personally take my chances with the legislation. There is little true visibility into this matter.

Personally, I would assume that I have to extend the lease after a couple of years of ownership. I would ensure that I would be eligible (you usually are but there are some criteria), and I would also price up what that would cost (depends entirely on the value of the property and ground rent but my guess is upper 4 figures), and I would incorporate that into the effective price I am paying. Only then you will find whether that's a competitive price for the property or not.

If not, then I would negotiate hard on the purchase price and/or the ground rent itself. It's not as if this is a hidden or arguable issue. If they don't budge to something acceptable, I would walk away.

ikanoi

rachlikeswinter said:

The article you posted is fairly longwinded but as far as I'm aware, just don't fall into arrears on any ground rent you owe and there's nothing to worry about? Tbh It would be pretty dire if you couldn't afford ~£250 a year, my mortgage would be the first of my worries if money became that tight!

At the end of the day, you buy it or you don't. Good to have the facts but I wouldn't say £245 is out of the ordinary these days.

Thanks for your thoughts, yes as you say it will be fairly trivial to just not fall into arrears. My main concern was the fact that once the rent is over the threshold, we will lose the Right of Refusal as it seems admittedly anecdoteally, that developers in the past have sold off their leaseholds to investment companies that use them as bargaining chips against their tenants. Perhaps I'm simply reading too many horror stories and was hoping a few experiences from the community here would abate my anxieties!

eddddy

princeofpounds said:

It didn't used to matter much, but lenders seem to have woken up in the last few years and decided that they were no longer comfortable with the risks, and so many will now refuse to lend on such a property. 

As far as I'm aware, the lenders just ask for indemnity insurance.

But the indemnity insurance only covers the lender  - i.e. it would pay off the mortgage loan. It doesn't cover the leaseholder. So if the property is repossessed, the leaseholder loses their equity.