Buying a house with escalating ground rent and a landlord unwilling to sell the lease

MsCrumble

We agreed to purchase a terraced house in Autumn 2025 for £725k. The sellers told us the ground rent was 'static'. Unfortunately, when we received the title documents, we discovered the ground rent escalated by RPI every 10 years. It is currently £550 p.a. and the next increase is in 2035. There is no cap so the rent increases until the end of the lease which is 995 years from 2015. We love the house and would like to proceed, but only if the problems with the lease can be resolved.

We’ve been advised the head lease should be bought to avoid difficulties if/when we need to re-sell. The vendors will not do this themselves because they cannot wait for the significant extra time it will take. (They also believe the ground rent is not an issue.) We approached the head leaseholder and he will not sell voluntarily or do a Deed of Variation. To buy the freehold we will, therefore (after completion), have to use the formal process to force the sale, and probably end up at tribunal. 

We know this is likely to be expensive. We will need to instruct a chartered surveyor and solicitor but at this stage we are simply trying to get some idea of the likely (minimum and maximum) costs. We need this to see if we can afford to go ahead with the purchase before trying to buy the freehold. On line calculators are not very helpful and (understandably) the surveyors we’ve consulted informally, can only give very general advice. We would, therefore, really like to hear from anyone who's been in a similar situation or has had relevant professional experience they're happy to share.

user1977

I wouldn't say it was "escalating" in any material way if it only increases in line with RPI - it just means that the ground rent in 2035 will be the same in real terms as it was in 2025. The problems are more with the ones which increase in a way which is (possibly) far in excess of inflation.

(until very recently there was a separate issue about rent over a certain amount making the lease into an Assured Tenancy, but that's been resolved by the Renters Rights Act)

Woodstok2000

It really doesn't seem like it's a huge deal. Even at an unlikely rpi of 5% every time, thats only an extra £20 per month by 2100...

EDIT: Should have said 2035 not 2100!!!

mta999

I make it (if not compounded) 5% x 10 years so extra 50% by 2035 so base resets to £775.

next 10 years 50% of £775 so £1162

next 10 years 50% of £1162 so £1743

etc

assuming rpi 5%

even worse if 5% is compounded each year

user1977

OP needs to check the calculation in the clause, but normally it would just be straightforward indexation - so the increase to £550 last year would have been from about £395 in 2015.

eddddy

MsCrumble said:

...the ground rent escalated by RPI every 10 years. 

It is currently £550 p.a. and the next increase is in 2035. 

There is no cap so the rent increases until the end of the lease which is 995 years from 2015. 

Based on past tribunal decisions, it seems like the cost of buying your freehold might be between £18k and £28k.

Under current legislation, you will also have to pay...

• Your own legal and valuation costs
• Your freeholder's legal and valuation costs
• Your head leaseholder's legal and valuation costs

If you don't go to tribunal, I'd guess that might be total costs of up to £6k to £7k

If you do go to tribunal, I'd guess that might be total costs of around £10k+




If it goes to tribunal, in simple terms it might work like this...

• Your valuer might say "The cost of the freehold should be £x, because of 'a', 'b' and 'c' "

• The freeholder's valuer might say "The cost of the freehold should be £y, because of 'd', 'e' and 'f' "

• The head leaseholder's valuer might say "The cost of the freehold should be £z, because of 'g', 'h' and 'i' "

The tribunal would look at  'a', 'b', 'c', 'd', 'e', 'f', 'g', 'h', and 'i' and decide which are valid arguments, and which should be ignored.

If your valuer is more experienced and/or presents a better argument the other parties' valuers, you might get a better result.

(FWIW, my solicitor described a tribunal as 'a lottery' - the outcome is very unpredictable. He advised trying as hard as you can to negotiate an agreement without going to tribunal.)




Given the amounts involved, before proceeding, it might be worth paying a valuer £500 to £800 to give you a valuation for buying the freehold.
(But quiz the valuer about their expertise and experience. e.g. How many previous cases have they taken to tribunal with ground rents that escalate with RPI?)

MsCrumble

Thank you Eddddy for such a comprehensive and helpful answer.