Lease terms "Rent" vs "Ground Rent"

fussyhumanbeing1 · 16 April 2018 at 11:24AM

I'm in the process of purchasing a flat which is subject to a new lease being written by the freeholder (seller, Victorian conversion) and agreed by the leaseholder (me).

The current "draft" lease does not make reference to "Ground Rent" anywhere, instead refers to "Rent" which is set at 400£ pa for 125 years.

I have objected to this and my solicitors (who were recommended by the sellers agent) are refusing to help change this in the lease.

I am concerned with the term "Rent" being used here instead of "Ground Rent" - because I understand the government may pass legislation in the future to tackle unfair leasehold practices and may thus enact law which would impact the terms of existing leases. I feel like the freeholder is trying to invoke a loophole.

Do you think I have reason to want to change this? Or am I being unreasonable?

davidmcn · 16 April 2018 at 11:30AM

I'm not aware of there being any legal distinction between "rent" and "ground rent" dependant on the word "ground" being in there - are you? Even if there were, it would take some very sloppy drafting of any new legislation for there to be such a loophole.

sitesafe · 16 April 2018 at 1:00PM

It's your money and you're paying for for a service, solicitors don't come cheap so I don't think you're being unreasonable or to at least be told why they are unwilling to change it. Maybe ask the solicitors why - It's not as if it's difficult for them to use the search and replace facility on the document.

Tom99 · 17 April 2018 at 1:22AM

[FONT=Verdana, sans-serif]Ground rent is just a term used to refer to a lease where the rent is very low relative to the property value and the leaseholder has paid a (usually large) premium for the lease.

[/FONT] [FONT=Verdana, sans-serif]The term probably dates from a long time ago when it actually might have been more usual for a lease to be of the ground on which the lease purchaser then erected a building.

[/FONT] [FONT=Verdana, sans-serif]When you buy a flat these-days you are not taking a lease of the ground you are leasing the whole flat and the lease will always just refer to the rent as rent never ground rent.

[/FONT] [FONT=Verdana, sans-serif]Its extremely unlikely the freeholder will agree to call it ground rent but you need not worry that any future legislation would exclude your lease just because it refers to rent rather then ground rent.

[/FONT] [FONT=Verdana, sans-serif]That said, the chances of future legislation making backdated changes to 'ground rents' which are already in existence are about zero other then the already existing option of buying out the ground rent at market value.

[/FONT] [FONT=Verdana, sans-serif]You should be far more worried about the level of ground rent and any increase of ground rent in the future. The starting ground rent at £400 seem quiet high unless it is a very expensive flat and if there is provision to increase it in the future that also has an effect.

[/FONT] [FONT=Verdana, sans-serif]RPI every 25 yrs or rent doubling every 25 yrs is probably just about ok but anything more should be resisted.

[/FONT] [FONT=Verdana, sans-serif]Since this is a new lease then the amount of ground rent and the review provisions is something you can negotiate on.[/FONT]

da_rule · 17 April 2018 at 7:58AM

Any legislation is unlikely to be as prescriptive as saying it applies to ground rent only. It should hopefully cover anything that in reality is ground rent, even if its actually called something different.

Also, £400p/a ground rent (you don't mention any review/increase clause) for 125 years is unlikely to be unfair. From my understanding the legislation will be there to protect against things like rents doubling every 10 years etc.

Another option would be to take the lease, wait 2 years and then carry out a statutory lease extension. This would be relatively cheap, given that there will still be in excess of 120 years on the lease. This will remove the requirement to pay rent altogether.

You may have a bigger problem however if your solicitors are refusing to carry out your instructions without justification. And even then you can still overrule them and ask them to do it anyway, it is essentially just changing a single defined term.

If it is that much of a concern for you though you can always walk away.

eddddy · 17 April 2018 at 9:34AM

da_rule wrote: »

You may have a bigger problem however if your solicitors are refusing to carry out your instructions without justification. And even then you can still overrule them and ask them to do it anyway, it is essentially just changing a single defined term.

It's the seller's solicitor that will be drawing up the lease, not the buyer's solicitor.

(I imagine that the same wording is used for all the leases in the conversion - some of which may already be sold. It might be 'unhelpful' if different terminology is used in different leases on the same freehold property.

e.g. In 80 years time... "Why did the freeholder specifically use the word 'rent' for the ground floor flat lease and the word 'ground rent' for the first floor flat lease - did they intend it to mean something different?")

davidmcn · 17 April 2018 at 9:39AM

da_rule wrote: »

You may have a bigger problem however if your solicitors are refusing to carry out your instructions without justification. And even then you can still overrule them and ask them to do it anyway, it is essentially just changing a single defined term.

Even if the OP's solicitor agrees to attempt revising that into the draft, it may well be rejected by the freeholder (or likely that they're refusing because they know it will be a waste of time asking).

fussyhumanbeing1 · 17 April 2018 at 9:41AM

Tom99 wrote: »

[FONT=Verdana, sans-serif]Ground rent is just a term used to refer to a lease where the rent is very low relative to the property value and the leaseholder has paid a (usually large) premium for the lease.

[/FONT] [FONT=Verdana, sans-serif]The term probably dates from a long time ago when it actually might have been more usual for a lease to be of the ground on which the lease purchaser then erected a building.

[/FONT] [FONT=Verdana, sans-serif]When you buy a flat these-days you are not taking a lease of the ground you are leasing the whole flat and the lease will always just refer to the rent as rent never ground rent.

[/FONT] [FONT=Verdana, sans-serif]Its extremely unlikely the freeholder will agree to call it ground rent but you need not worry that any future legislation would exclude your lease just because it refers to rent rather then ground rent.

[/FONT] [FONT=Verdana, sans-serif]That said, the chances of future legislation making backdated changes to 'ground rents' which are already in existence are about zero other then the already existing option of buying out the ground rent at market value.

[/FONT] [FONT=Verdana, sans-serif]You should be far more worried about the level of ground rent and any increase of ground rent in the future. The starting ground rent at £400 seem quiet high unless it is a very expensive flat and if there is provision to increase it in the future that also has an effect.

[/FONT] [FONT=Verdana, sans-serif]RPI every 25 yrs or rent doubling every 25 yrs is probably just about ok but anything more should be resisted.

[/FONT] [FONT=Verdana, sans-serif]Since this is a new lease then the amount of ground rent and the review provisions is something you can negotiate on.[/FONT]

Hi Tom, I really appreciate your helpful response.

The flat sales value is 425k, asking price was 450k. The GR is £400 pa. to be double every 25 years (from now). Does this seem exorbitant?

bouicca21 · 17 April 2018 at 11:25AM

Yes it's high. I have a flat of similar value, ground rent £250, doubling every 30 years. And back to the original question, the lease refers to 'annual rent' not ground rent.

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Lease terms "Rent" vs "Ground Rent"

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