Don't understand contract - any ideas?

Lillys_mum

Hi, sorry I have no idea where to post this but could you cast your eyes over this and maybe explain it to me.

We are buying a shared ownership property (we initiated the purchase in Sept 07 - and are finally at exchange)

We are purchasing a 50% share and have rent on the further 50%

At present the rent is calculated at £235.86 per month - house valued at £190,000.00

Now in the contract there is a description of how the rent changes but I do not understand it.

Rent is reviewed 01/04/08 (Not very fair as we will only have been in a month!!!)

On each review date (01/04 every year) the new Gross Rent shall be the rent calculated by increasing the Gross Rent payable immediately prior to the relevant review date by 2% above the percentage increase of the RPI between the November prior to the relevant review date and the month of November twelve months prior thereto.
the specified rent payable hereunder shall be reviewed to an amount equal to the relevant percentage of the new gross rent as at the relevant review date.



What does all that mean?

How do I know how much it is going to change by - and what am I to expect it to change by for April 08.

I cannot get hold of the solicitor right now so am sat here completely clueless.

Please help

LM

xx

lynnexxxo

Have read this three times and still confused but i think it means the rent will be increased by 2% above the retailprice index(rpi) which is loosely the rate of inflation.

Inflation in 2007 was roughly 4% so your new rent would be 235.86 + 6% = £250.

Apologies in advance if I am wrong!!!

Just noticed it said the rate from november 2006 - nov 2007 so my 4% may be off.

littlemissmoney

Each April they will look at what the RPI increase was over for year ending in the previous November. So in April 2008 they will look at the RPI from November 2006 to November 2007. Then they will add 2% and that's what your rent will increase by! You can probably find the RPI on the national statistics website to get an idea of what it's been in the past. Say it's 5% from November 2006 to November 2007 (I've made that up), your rent will increase by 7%!

littlemissmoney

Lillys_mum wrote: »

the percentage increase of the RPI between the November prior to the relevant review date and the month of November twelve months prior thereto.

Surely they have this the wrong way around!? The way it's worded, this year you would take the increase between November 2007 and November 2006, which would be negative! Even after the 2% is added, it would probably result in a rent cut

wriggly

As I understand it, the Gross Rent is the amount of rent you would pay if you owned no share of the house. Your actual rent is the Gross Rent in proportion to the percentage you do not own, so currently you have to pay 50% of the Gross Rent. If £235.86 is the amount you have to pay now, then your Gross Rent is £471.72.

If you increase the amount of equity you own in the house, your rent will be reduced accordingly. For example, if you buy another 10%, you will own 60% and the other party will own 40%. Hence, your rent will then be 40% x £471.72 = £188.69.

Every April, the Gross Rent, and, assuming your equity remains in the same proportion, your actual rent, will increase by RPI + 2%. RPI is currently around 4%, so you're looking at about a 6% increase in rent this year.

What this means for you, I cannot say. It seems a fairly generous increase in rent to write into a contract. However, if the gross rent of £471 is lower than what a similar house would rent for in your area, the higher rents later might be compensation to the other party for subsidising a lower rent now. This would fit with the idea of shared ownership being for younger people whose income will rise relatively quickly.

PasturesNew

Lillys_mum wrote: »

At present the rent is calculated at £235.86 per month - house valued at £190,000.00

Rent is reviewed 01/04/08 (Not very fair as we will only have been in a month!!!)

You will find most/all/many such contracts are for 01/04 because that is the start of their new financial year. They are then dealing with all rent increases all from the same date, reducing management of them.

Lillys_mum wrote: »

On each review date (01/04 every year) the new Gross Rent shall be the rent calculated by increasing the Gross Rent payable immediately prior to the relevant review date

On each 1st of April, take the rent you are paying at that time (£235.86)

Lillys_mum wrote: »

2% above the percentage increase of the RPI between the November prior to the relevant review date and the month of November twelve months prior thereto.

e.g. this year it will go up by 2% above the increase in the Retail Price Index between November 2006 and November 2007 (you'd have to look those figures up)

Lillys_mum wrote: »

the specified rent payable hereunder shall be reviewed to an amount equal to the relevant percentage of the new gross rent as at the relevant review date.

How much rent you pay depends on the %age of the property you are owning/renting



So, where it says it will go up by the RPI each year, that means your rent increases will keep in line with the price of goods.

However, what I'd look into is the fact it is increasing 2% over that each year. Indicating that, compared to today, in future years the rent will be more expensive year on year.

However, often the RPI is artificially adjusted lower than what is really happening, so on balance it might not seem that significant.

Sample sums (simple figures):
If your rent were £235.86
If the RPI between Nov 2006 and Nov 2007 were 3%

Then come 1/4/08 your rent would go up 5% (3%+2%)

So that would mean rent would be £235.86 x 1.05 = £247.65

littlemissmoney

Had a look on National Statistics website and I think RPI was 4.3% from Nov 06 to Nov 07. So you will be paying £250.72 from April (obviously get this checked properly...).

littlemissmoney

Btw, I think a rent increase of 2% above inflation is quite scary! How long do you think you will be renting part of it? If you rent part of it for 25 years then your rent will be 64% more in real times in 25 years time! :eek:

So unless you intend to buy the whole house in the short to medium term, or the rent is currently much lower than market value, I would think seriously about this.

Lillys_mum

Thanks for all the responses.

That is kind of what I thought. I did read on a website that they were only allowed to charge 0.5% above the RPI but upon telephoning them it is subject to the individual HA time of registering - even more confusing.

I have fired off these questions in an email to my solicitor so will see what he says.

We are hoping to be in a position to buy further shares over the next few years with a view to owning the whole property within 10 yrs. (we are allowed to buy the full 100%)

Many thanks

LM

littlemissmoney

How does the total rent compare to the local market rent for such a house?

Lillys_mum

wriggly wrote: »

What this means for you, I cannot say. It seems a fairly generous increase in rent to write into a contract. However, if the gross rent of £471 is lower than what a similar house would rent for in your area, the higher rents later might be compensation to the other party for subsidising a lower rent now. This would fit with the idea of shared ownership being for younger people whose income will rise relatively quickly.

The average rental price of a 3 bed in our villiage is £650-£750 pm which is why we decided to opt for the Shared Ownership option. Our Mortgage is £543 pm (fixed for 10yrs) and then rent on top brings us just over the top end of the rent for our area.