Ground rent above £250pa

CherryK87

Hi all, 

I wonder if anyone has had recent experiences of being able to sell their flat with a ground rent above £250 per year. 

We have had a nightmare in that we lost two buyers, not due to the ground rent, but now we are in the process of trying to sell again and our buyers have settled on a lender that we know will not accept ground rent above £250. 

We are more than happy to pay indemnity insurance for a buyer so that a lender may be appeased. Unfortunately we approached HomeGround who manage the freehold on behalf of Adriatic Land 3 and they have outright refused to a Deed of Variation to lower and cap the ground rent. Here is the response we received:

We are aware of the technical issue with ground rent in excess of £250 p/a and Schedule 2 of the Housing Act 1988. We do not accept that the issue is of real significance, or acts as a bar to sale or lending if the protections available to the lender are properly explained.

Irrespective of whether the lease requires service of a Notice seeking Possession or advance notice before proceedings are issued on a lender, the lender is always entitled to be served with possession proceedings under Practice Direction 55A of the CPR 1998, and can at any time avoid mandatory possession by paying the outstanding ground rent into Court or to the Landlord under Section 138 of the County Courts Act 1984.

We do not see any realistic likelihood of Landlords using the Housing Act possession route instead of standard forfeiture to enforce rent arrears given the clear advantages of the latter, including recovery of costs. This is borne out by the lack of examples of such cases in the residential long leasehold sector to date. Furthermore, we have specific instructions from our client landlord not to pursue this type of possession proceedings.

The issue at hand also formed part of the DCLG discussions. These discussion have been finalised and the Government’s comments on this particular issue were as follows:

 

“The Government is aware that, where ground rents exceed £250 per year or £1,000 per year in London, a leaseholder is classed as an assured tenant. This means, for even small sums of arrears, leaseholders could be subject to a mandatory possession order if they were to default on payment of ground rent. The Government will take action to address this loophole and ensure that leaseholders are not subject to unfair possession orders.”

If consideration is had to the above statement by government and the academic nature of this issue, it is clear that any potential risk relating to this technical point will be mitigated by forthcoming legislative changes. As this loophole will be closed, we are of the view that there is no risk to a lender and that this point should not act as a bar to sale or lending. We therefore believe that any variation would be a waste of time and money and is not necessary.

As a reasonable landlord, and on the specific understanding that we do not believe this to be necessary, should you maintain that a variation is required, our client will offer to insert the following into the lease by way of variation:

The Landlord hereby confirms that it will not seek possession of the [Address] on the basis that this lease has created an Assured Tenancy under any of the grounds set out in Schedule 2 to the Housing Act 1988.

I am aware that this was a generic response sent as I have seen it in another post dating back years, so the government have still not been able to sort this year's down the line!

I wonder if anyone has had similar and lenders have accepted this clause added to the lease? This will cost us, but is significantly cheaper than going down the lease extension route, which we hope to avoid at this stage, as we are looking to move imminently. 

We know there are lenders that will accept it as our previous two buyers were able to obtain mortgages, but it is limiting buyers options, and indeed ours when we come to remortgage if we aren't able to sell. 

I appreciate it if you have made it this far through this rather long post, and would appreciate anyone taking the time to respond.

Thanks in advance! 

user1977

The problem is about to be abolished by the Renters' Rights Bill which is going through Parliament - no guarantee about exactly when that will happen or when it comes into force, so I suppose everyone is still technically correct in saying it is currently a risk, but we must be in the dying days of it being relevant.

CherryK87

user1977 said:

The problem is about to be abolished by the Renters' Rights Bill which is going through Parliament - no guarantee about exactly when that will happen or when it comes into force, so I suppose everyone is still technically correct in saying it is currently a risk, but we must be in the dying days of it being relevant.

Thank you for taking the time to read and reply.

I don't believe that the renter's rights bill will have any impact as we are leasehold owners of the flat, not renting from a landlord. 

I know that there are reforms going through parliament, but they are unlikely to come into place for many years and we are looking to sell our flat as soon as possible. 

user1977

CherryK87 said:

user1977 said:

The problem is about to be abolished by the Renters' Rights Bill which is going through Parliament - no guarantee about exactly when that will happen or when it comes into force, so I suppose everyone is still technically correct in saying it is currently a risk, but we must be in the dying days of it being relevant.

I don't believe that the renter's rights bill will have any impact as we are leasehold owners of the flat, not renting from a landlord. 

I know that there are reforms going through parliament, but they are unlikely to come into place for many years and we are looking to sell our flat as soon as possible. 

Well, one of us has read the Bill, but disbelieve me if you really want to. It changes various leasehold things including the relevant definition of Assured Tenancies.

CherryK87

user1977 said:

CherryK87 said:

user1977 said:

The problem is about to be abolished by the Renters' Rights Bill which is going through Parliament - no guarantee about exactly when that will happen or when it comes into force, so I suppose everyone is still technically correct in saying it is currently a risk, but we must be in the dying days of it being relevant.

I don't believe that the renter's rights bill will have any impact as we are leasehold owners of the flat, not renting from a landlord. 

I know that there are reforms going through parliament, but they are unlikely to come into place for many years and we are looking to sell our flat as soon as possible. 

Well, one of us has read the Bill, but disbelieve me if you really want to. It changes various leasehold things including the relevant definition of Assured Tenancies.

My apologies, I thought this was for private renting tenants and therefore not applicable to us. My mistake, and I will be sure to read up on this bill.

itsthelittlethings

Are you in London? Over £250 a year would not concern my if I could get a mortgage, what I would look at are future increases.

CherryK87

itsthelittlethings said:

Are you in London? Over £250 a year would not concern my if I could get a mortgage, what I would look at are future increases.

No, unfortunately not in London, I'm in south east England. So with the ground rent being £300 already, the issue is already there, as well as the provision in the lease to increase with RPI every 10 years. 

user1977

itsthelittlethings said:

Are you in London? Over £250 a year would not concern my if I could get a mortgage, what I would look at are future increases.

Any future rent reviews are almost certainly going to be after the limit is abolished (though obviously it still means you need to pay the ground rent, until there's some further reform to get rid of them).

itsthelittlethings

I feel like this leasehold bill is a bit of an "always winter, never christmas", situation. 

CherryK87

itsthelittlethings said:

I feel like this leasehold bill is a bit of an "always winter, never christmas", situation. 

I feel a bit like that too, but hope that something does happen to help the millions of people affected by these ridiculous leases. I know I am the one who signed on the dotted line into the leasehold, but at no point back in 2019 were we made aware what a nightmare it could be to sell year's down the line.