£250+ ground rent AST threshold

eddddy

ikanoi said:

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!

I think you might be getting confused (maybe by misleading horror stories). What do you mean by "use them as bargaining chips against their tenants"?

You wouldn't have the "Right of First Refusal", but you would have the right of "Collective Enfranchisement" - which is essentially the right for leaseholders to compulsorily purchase the freehold at whatever time they choose.

So if the freehold gets sold to somebody you don't like - the leaseholders can compulsorily purchase the freehold from them.

It would need some level of agreement and cooperation between the leaseholders to do that - but the same would be true if you wanted to take up a "Right of First Refusal".

Alternatively, the leaseholders can compulsorily take over the "Right To Manage" the building from the freeholder.

princeofpounds

As edddy says, who owns the freehold doesn't really change the rights and obligations of leaseholders. The cost to extend the lease or to purchase the freehold through enfranchisement will be the same either way. Obviously the freeholders will probably ask for some unreasonable amount up front to maximise their benefit, if you are silly enough to take the bait - but that would be the same if it were a development company or an investment company. 

ikanoi

eddddy said:

ikanoi said:

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!

You wouldn't have the "Right of First Refusal", but you would have the right of "Collective Enfranchisement" - which is essentially the right for leaseholders to compulsorily purchase the freehold at whatever time they choose.

Why do you think I wouldn't have the RFR? 
The RFR is restricted to qualifying tenants. These include leaseholders and most fixed or periodic tenancies, but specifically excludes shorthold or assured tenancies...

princeofpounds

ikanoi said:

eddddy said:

ikanoi said:

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!

You wouldn't have the "Right of First Refusal", but you would have the right of "Collective Enfranchisement" - which is essentially the right for leaseholders to compulsorily purchase the freehold at whatever time they choose.

Why do you think I wouldn't have the RFR? 
The RFR is restricted to qualifying tenants. These include leaseholders and most fixed or periodic tenancies, but specifically excludes shorthold or assured tenancies...

If you read the two links I posted earlier, it explains this for you. The nearlylegal one, I recall.

eddddy

ikanoi said:
Why do you think I wouldn't have the RFR? 

Ummm... we'll firstly, you seemed to said so.  I assumed when you said  "Right of Refusal", it was a typo for "Right of First Refusal" - if not what do you mean by "Right of Refusal"?...

ikanoi said:

My main concern was the fact that once the rent is over the threshold, we will lose the Right of Refusal

Secondly, the piece of text that you quoted says you wouldn't have RFR, because your leasehold would be an Assured Tenancy...

ikanoi said:

Why do you think I wouldn't have the RFR? 

The RFR is restricted to qualifying tenants. These include leaseholders and most fixed or periodic tenancies, but specifically excludes shorthold or assured tenancies...

  Have I misunderstood what you're saying?

ikanoi

eddddy said:

ikanoi said:
Why do you think I wouldn't have the RFR? 

  Have I misunderstood what you're saying?

Aah, no you didn't but I misinterpreted your comment. I see what you're saying now - I would lose RFR but still have plenty of other options available. Very true, thank you for the insight.

ikanoi

princeofpounds said:

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

Thanks for the links @princeofpounds - super helpful and I think this is going to be our way forward. As you say, they can't be unaware that they have the upper hand as the price is conveniently just under the threshold. Thank you for taking the time to comment.

NameUnavailable

I don't think that there's anything in the proposed leasehold law changes to tackle this isssue for existing leaseholds.

The issue is not the cost of the ground rent (as some people seem to be fixated on) it's more to do with becoming an AST and losing certain legal rights, but mostly, the saleablility of the flat - if you get a mortgage today a future buyer may not (when the GR exceeds £250 EVEN IF IT'S RPI LINKED).

It's a big problem but some people don't think anything's a problem until it actually affects them.

ikanoi

NameUnavailable said:

I don't think that there's anything in the proposed leasehold law changes to tackle this isssue for existing leaseholds.

The issue is not the cost of the ground rent (as some people seem to be fixated on) it's more to do with becoming an AST and losing certain legal rights, but mostly, the saleablility of the flat - if you get a mortgage today a future buyer may not (when the GR exceeds £250 EVEN IF IT'S RPI LINKED).

It's a big problem but some people don't think anything's a problem until it actually affects them.

Yes, this is my issue. Despite what people parrot here, flats do work for some people and I'm more than happy to pay the service charges that go along with living in a building with communal areas but having to negotiate to simply hold on to their legal rights is something that no property purchaser should have to deal with.

Comms69

ikanoi said:

NameUnavailable said:

I don't think that there's anything in the proposed leasehold law changes to tackle this isssue for existing leaseholds.

The issue is not the cost of the ground rent (as some people seem to be fixated on) it's more to do with becoming an AST and losing certain legal rights, but mostly, the saleablility of the flat - if you get a mortgage today a future buyer may not (when the GR exceeds £250 EVEN IF IT'S RPI LINKED).

It's a big problem but some people don't think anything's a problem until it actually affects them.

Yes, this is my issue. Despite what people parrot here, flats do work for some people and I'm more than happy to pay the service charges that go along with living in a building with communal areas but having to negotiate to simply hold on to their legal rights is something that no property purchaser should have to deal with.

So dont buy it.... they are offering A, you want B, so go find B. Dont expect it to change to A.