Escalating ground rent issue

tom741

Hey
I’m in the process of buying an apartment in London and my solicitor is worried about the ground rent

the annual rent starts at £250 but increases every 25 years – to £400, then to £800, again to £1,600 and, finally, to £3,200 (in year 125). we have around 7 years to move from 250 to 400.

I understand that one solution will be indemnity insurance . Will a lender be open to it ? (Halifax in my case)

I would also mention that the ground rent pay in practice is only £250 for 900 years because some apartments (including the one I want to buy) joined together and bought the head lease but at the moment we don’t have a deed of variation to confirm it.. The situation with the lease and the fact that some apartments bought the head lease and don’t pay ground rent is not clear to me. 

I’m guessing in the future I can ask to reduce the ground rent to peppercorn and pay for this of course. 

So happy to hear opinions on that as well.

thank you!

eddddy

I can't see that indemnity insurance would be relevant here.

I guess you mean Forfeiture of Lease (Housing Act Repossession) indemnity insurance. As the apartment is in London, that's only relevant if the Ground Rent goes over £1000 (the limit is £250 outside London).

It sounds like it's 57 years before your Ground Rent would go over £1000 - and the mortgage would be paid off before then.


It's really just a question of whether the ground rent is onerous and will affect the future saleability of the apartment. Some mortgage lenders are stating to get very nervous about this.

As you say, you could wait 2 years and do a lease extension to reduce the ground rent to zero. And/or the leasehold reforms under discussion are planned to allow leaseholders to buy-out their ground rent, without extending the lease. But it's very unclear if/when those will come into force,

 

tom741

Yes I meant Forfeiture of Lease (Housing Act Repossession) indemnity insurance

propertyhunter

I lived in a flat with a doubling ground rent. I bought it in 2015 and, inadvisably and never again, used the developer's solicitor to purchase it. He glossed over the importance of the ground rent clause. It is an issue for prospective lenders when trying to sell, however, it was overcome with an indemnity policy in my case and I sold without an issue. I would be more concerned about the fire safety of the building and what the status is with respect to EWS1 certification at the present time. I would also look at the service charges too. Is there a deficit in the reserves that means service charges are likely to increase in future (beyond inflation)? What is the condition of the communal areas? Are they in disrepair and need work done soon? Perhaps look into these issues closely and know what you are getting into. There are a lot of London flat owners trapped in the cladding scandal and looking to escape. I personally would never go back into leasehold as you don't own the building, but will be liable for costs of the freeholder who does own the building. 

If you have your heart set on the flat, I would ask the current owner to initiate a deed of variation to the lease to have the ground rent reduced to peppercorn and the lease extended at the same time. Doing it this way means you don't have to wait 2 years after owning it before doing this yourself (ask your solicitor if that's possible). I think the flat market in London is more of a buyer's market - so use that to your advantage. 

user1977

tom741 said:

The situation with the lease and the fact that some apartments bought the head lease and don’t pay ground rent is not clear to me. 

Probably best you get your solicitor to clarify it to you first.

tom741

thank you for you answers !

about the EWS1 we didn't see anything too worrying, but most of the energy till now was with the ground rent issue. my solicitor didn't agree not to report it to the lender even though the ground rent pay in practice is 250 for 999 years. (the head lease that few apartments including the one I want to buy bought a few years ago) and she is saying the lender will only care about the lease of the building which the ground rent is higher. 

tom741

so im hoping the indemnity insurance will be ok with the lender.

Jeffrey_Shaw

Also: await the impending Leasehold Reform (Ground Rent) Bill https://bills.parliament.uk/bills/2864

It's now before Parliament, has already been through the House of Lords, and awaits its Second Reading this week in the House of Commons.

Crashy_Time

Interesting.