Ground rent review - what do I do?

MichaMyBell

I have owned my flat for 25 years and the ground rent has just been reviewed as per the lease. At the moment I pay £50 per year.  Under the terms of the lease, they are proposing to put it up to £550 which is 0.25% of the value of the property.  However they have also made an alternative offer which would cap the ground rent at £250 but would have to pay the landlord a premium and her legal costs - I don’t know what they would be. Is this a fair increase though it is in line with the lease?  What should I do? I don’t have thousands but could get a loan. I feel stuck as if I don’t take the £250 deal then that makes my flat unsaleable.
I know there is lot happening in government at the moment regarding ground rents.
Any advice would be appreciated.
Thank you for reading this and stay safe.

princeofpounds

Firstly, the ground rent you pay is set out in the lease. If it is being raised due to a scheduled review then it is what it is. We can't read your lease so we can't tell you if it's the correct number. Why don't you read your lease, post the relevant excerpts here?

The only 'proposal' is what they are offering you as an alternative. 

First - if you are not in London, having a ground rent of over £250 (£1000 in London) can be very problematic if you are looking to sell. The issue is a little complex, but basically your lease then becomes an assured shorthold tenancy. This wasn't considered important until a few years ago, when the courts decided that this gave the freeholder more rights than people generally thought to repossess the property. In particular, the part that caused problems was the lack of necessity to inform the mortgage lender of proceedings, so the mortgage lender couldn't defend the security they had over the property. So mortgage lenders will often refuse to lend on these properties unless these protections are in the lease, and often they aren't present as a default. This is something that the government should sort out, but has taken years to do for some reason.

https://www.mishcon.com/news/publications/real_insights_-_property_update_05_2017/assured_tenancy_traps__the_unexpected_ast_05_2017

Then, separately, you need to consider whether what they are offering you is a good deal for the premium they are asking for. We simply cannot answer that without knowing how your ground rent is calculated based on the lease. In particular, you need to work out whether it's a good deal relative to the alternative, which is to pursue a statutory lease extension, which gives you 90 years lease extension and eliminates your ground rent. The price for this is defined by a formula and you go to Tribunal to implement it.

As for what is happening in government right now - we don't know. They announced some high-level political objectives but there are no details about what they will actually do. No draft legislation has been published. No committees are working on it in parliament. It's still on a civil servant's desk somewhere. It could be years before anything changes, something will probably happen one day but there is no commitment yet. We can only guess at what is planned, and it may not be as exciting as it sounds for existing properties.

MichaMyBell

This is the page in the lease relating to the ground rent. I believe everything is above board but it is frustrating that it is such a dramatic increase and makes the property unsaleable.

MichaMyBell

my property is on the south coast - so outside London. I bought a 125 year lease - not an AST! Surely that can’t be right. My mortgage will be paid off shortly - not sure if that makes any difference?

eddddy

MichaMyBell said:

my property is on the south coast - so outside London. I bought a 125 year lease - not an AST! Surely that can’t be right. My mortgage will be paid off shortly - not sure if that makes any difference?

There is an unintended 'loophole' in the Housing Act 1988 that means a lease (of any length) with ground rent over £250 is treated an 'Assured Tenancy'.  That means you can forfeit the flat (with no compensation), if your ground rent is 3 months overdue. 

See: https://www.blakemorgan.co.uk/ground-rents-when-is-a-long-lease-not-actually-a-long-lease/

That scares mortgage lenders (and buyers) - but it is possible to get indemnity insurance, so people can probably still get a mortgage.

The good news is that the government has stated their intention to remove this unintended loophole, but the bad news is nobody knows when.

Back to your original question - it's worth getting the quote for capping the ground rent at £250. But don't assume the freeholder will ask a fair price - they might try to rip you off. It's usual for you to pay both your own legal costs and the freeholders.

Mr_owl

I didn't want to start a new thread so I am going to ask my question here. If someone owns the leasehold flat and has been in the property at least 2 years and wishes to exercise the right to extend the lease does it automatically includes the removal of ground rent? Provided you are prepared to pay for the legal fees and the lease extension can actually someone stop it? I mean can freeholder refuse extension?

AdrianC

MichaMyBell said:

This is the page in the lease relating to the ground rent. I believe everything is above board but it is frustrating that it is such a dramatic increase and makes the property unsaleable.

That seems rather clear-cut... The ground rent is reviewed every 25yrs to 0.25% of the market value.
They are proposing doing exactly that.

This is the lease you agreed to when you bought the flat...

However... they recognise the issues that may cause, so are offering you an alternative, by offering you a variation to that lease.
It is absolutely reasonable that you should pay the legal costs for that variation.
It is also absolutely reasonable that you should pay the freeholder a premium - after all, they are foregoing more than half of their ground rent income.
The only question is how much that premium is...

eddddy

Mr_owl said:

I didn't want to start a new thread so I am going to ask my question here. If someone owns the leasehold flat and has been in the property at least 2 years and wishes to exercise the right to extend the lease does it automatically includes the removal of ground rent? Provided you are prepared to pay for the legal fees and the lease extension can actually someone stop it? I mean can freeholder refuse extension?

If you are a qualifying leaseholder and you follow the process of a "Statutory lease extension" - the freeholder cannot stop it.

It usually takes between 6 months and 18 months to complete.

This article explains more detail, including what a 'Qualifying Leaseholder' means:  https://www.lease-advice.org/advice-guide/lease-extension-getting-started/

(It might have been better to start your own thread with this new question - to avoid confusion.)

MichaMyBell

Am I right in thinking that because my lease is dated 25th March 1996 and is therefore before the 1996 Housing Act that it cannot become an AST?