Ground rent increase

tryingmybest99

Morning! I'm looking for some advice if that's OK. The lease extension for the flat I am buying has ground rent of £150, increasing every 15 years and the increase is calculated using RPI (no doubling factors or anything, just the RPI increase). The freeholder would not allow a clause of to prevent me going above £250 and becoming an AST so indemnity insurance has to be purchased to protect my lender. Is this likely to cause significant problems when reselling?

eddddy

So just to double check...

You're attempting to negotiate an informal lease extension with your freeholder, and the freeholder is only prepared to offer a high and escalating ground rent.


In that case, you should look at doing a "Statutory Lease Extension". That will reduce your ground rent to zero, and add 90 years to the length of the lease (and your freeholder can't refuse).

There's info about "Informal lease extensions" vs "(formal) Statutory Lease Extensions" here:
https://www.lease-advice.org/article/lease-extension-of-leasehold-flats-the-two-routes/


If you don't understand much about this stuff, it's probably sensible to talk to an experienced Lease Extension Valuer.


In the past, some dodgy freeholders have offered informal lease extension terms which are so bad that they've reduced the value of flats and/or made them unmortgageable.

(If you tell the freeholder that you're going down the statutory lease extension route, you might find that they voluntarily offer you a better deal.)

tryingmybest99

Thanks- no, I'm buying the flat and the lease extension is going through as part of the sale. I have looked up statutory lease extensions before as I don't understand why my sellar is not doing it this way. Maybe I could ask my conveyancer why they have not gone down this route?

eddddy

Ok - so do you need the lease extension in order to get a mortgage? (How long is the current lease?)

A statutory lease extension takes 6 to 18 months to complete. The seller could start the process, and you buy the flat and complete the process over the next 6 to 18 months - but that won't work, if you need the lease extension to get a mortgage.


If you need the lease extension in order to purchase, it's very possible that the freeholder feels they have the seller and you 'over a barrel'. The transaction can't go ahead without the extension - so the freeholder is taking the micky with an unreasonable offer..

eddddy

Out of interest - what terms is the freeholder offering? Number of years added, ground rent, (any other changes)?

What's the current lease length? How much is the freeholder charging? What is the price of the flat?

tryingmybest99

The flat is 180k with 80 years left, so I need it for a mortgage. It's going up to 125 years. There's no further charges but the management company charges £1400/ year for maintenance (which is good in this area of the country). 

eddddy

Are you sure you need the lease extension for a mortgage? 80 years is usually ok.


Are you saying that they're offering a "free" lease extension, in exchange for a greatly increased ground rent?

If so, that sounds very similar to the 'nasty trick' that some dodgy freeholders play on leaseholders.

The greatly increased ground rent increases the value of their freehold, but reduces the value of the leasehold flat. (So the freeholder makes money out the "free" extension, and the leaseholder loses money.)


In your position, I would...

• Get estimates for the cost of a statutory lease extension - including all the fees.
• If, say, the estimated cost is £5k - reduce your offer by £7k or £8k
• Tell the seller that you require them to start the lease extension process before completion

But you'll need advice from a lease extension valuer for this - which will cost a few hundred. And you'd lose that if the sale falls through.

You'd need to set aside £5k (or whatever) in cash for the lease extension - you probably won't be able to add the cost to your mortgage.


(But that assumes you don't need a lease extension for the mortgage - maybe double check that.)

tryingmybest99

eddddy said:

Are you sure you need the lease extension for a mortgage? 80 years is usually ok.


Are you saying that they're offering a "free" lease extension, in exchange for a greatly increased ground rent?

If so, that sounds very similar to the 'nasty trick' that some dodgy freeholders play on leaseholders.

The greatly increased ground rent increases the value of their freehold, but reduces the value of the leasehold flat. (So the freeholder makes money out the "free" extension, and the leaseholder loses money.)


In your position, I would...

• Get estimates for the cost of a statutory lease extension - including all the fees.
• If, say, the estimated cost is £5k - reduce your offer by £7k or £8k
• Tell the seller that you require them to start the lease extension process before completion

But you'll need advice from a lease extension valuer for this - which will cost a few hundred. And you'd lose that if the sale falls through.

You'd need to set aside £5k (or whatever) in cash for the lease extension - you probably won't be able to add the cost to your mortgage.


(But that assumes you don't need a lease extension for the mortgage - maybe double check that.)

Thanks- I will look into this! The ground rent is the same as before, but I think they've taken the opportunity to stick the RPI increase on.