Ground rent

Baldyman1

Guys need some advice here please .

Flat purchase in 2018  and have tried to sell it three times now with issues over Ground Rent . It goes up by RPI over a 10 year period  making it borderline onerous . All buyers have pulled out on their solicitor advice.

It’s £267 a year now ( outside of London ) and will effectively double in 2026.

The lease has 950 years remaining and I’ve asked for a variation of deed that is useless - it only says they will inform the lender if it’s defaulted but could still reposes.

Advice please 

1. lease extension- approx cost?
2. I’d there a compulsory option to buy out ground rent or is that at the freeholders discretion 
3. Wait and see what the government do - if anything?
4. Sue my conveyance solicitor who I purchased it through as both was brought to my attention- finer in the air here buyer beware ?

cheers

user1977

Baldyman1 said:

4. Sue my conveyance solicitor who I purchased it through as both was brought to my attention

What did they tell you at the time? They should have at least explained to you how it worked, but solicitors can't predict future changes in how such clauses might be viewed in the future. And I wouldn't have thought RPI increases to be "onerous", it just means the "real" value of the rent stays roughly the same - it's clauses where the rent doubles every x years irrespective of inflation which are more problematic.

eddddy

Baldyman1 said:

It’s £267 a year now ( outside of London ) and will effectively double in 2026.

1. lease extension- approx cost?

I think that the RPI increase over the last 10 years has around 50%, rather than 100%.

Assuming that's correct (and things stay on a similar course until 2026), your ground rent might increase to £400.

On that basis, the cost of a Statutory Lease Extension might be around £20k (plus fees).

Baldyman1 said:

2. I’d there a compulsory option to buy out ground rent or is that at the freeholders discretion 

Currently, there is no Statutory / Compulsory route to buy out ground rent (but there may be one in the future).

But it would make zero difference to you anyway.

The £20k cost of the Statutory Lease Extension is entirely made up of compensation to your freeholder for loss of ground rent.

The cost of actually extending the lease is £zero.




To explain this, bearing in mind you have a 950 year lease...

• How much would a rational person pay for a flat that becomes theirs when its lease ends in 950 years?
• The answer is £0 

And if you extend the lease by 90 years so you have a 1040 year lease...

• How much would rational person pay for a flat that becomes theirs when its lease ends in 1040 years?
• The answer is still £0 

So, as far as a tribunal is concerned, the loss to the freeholder from extending the lease is £0 - so you should pay the freeholder £0 compensation.

(As I say, the £20k is compensation for loss of ground rent.)

NameUnavailable

The problem is that your GR is already over £250 so your lease is an AST (which is a problem if you fail to pay the GR, the freeholder can apply to forfeit the lease and the court has to grant it).

In reality it would be unlikely to happen (as I'm sure you would somehow find a way to pay the GR rather than lose your home) but banks don't like any chance of their security being at risk.

Depending on your situation I personally would wait to see what happens next re. leasehold law.

saajan_12

Baldyman1 said:

Flat purchase in 2018  and have tried to sell it three times now with issues over Ground Rent . It goes up by RPI over a 10 year period  making it borderline onerous . All buyers have pulled out on their solicitor advice.

... and will effectively double in 2026.

No, this isn't particularly high. Increasing by RPI just means its keeping track with inflation, regardless of how frequent the review periods are. There's an issue when there's a fixed increase (eg doubling) and when its frequently applied, which is not the case here. 

Perhaps you were unlucky with ill informed buyers, but there's nothing inherently wrong with that clause in a lease, and hence no come back on your purchasing solicitor. Note an inflationary increase in the last 10 years mid 2014 -> mid 2024 is 50.7%. The increase 2016->2026 will be slightly different, but unlikely to be double. 

Baldyman1 said:

It’s £267 a year now ( outside of London ) and will effectively double in 2026.

The lease has 950 years remaining and I’ve asked for a variation of deed that is useless - it only says they will inform the lender if it’s defaulted but could still reposes.

Well that's your issue, that its already over 250 a year, and so treated as an AST where the freeholder can repossess. Varying this to notify the lender isn't useless, as the lender can then pay the ground rent and add it to the mortgage. That's usually all they want, as it preserves the asset. 

Suggest following through with the variation or looking into a statutory lease extension which also lowers the ground rent at the same time. Either should be fine.