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    • RedRuby
    • By RedRuby 9th Mar 18, 11:08 AM
    • 98Posts
    • 70Thanks
    RedRuby
    Lease extension - ground rent clause
    • #1
    • 9th Mar 18, 11:08 AM
    Lease extension - ground rent clause 9th Mar 18 at 11:08 AM
    Can anyone help me to decipher what this clause is saying/means?

    An increase in ground rent to 200 (its currently 100 per annum) reviewed every 10 years with an increase of 2.5% compounded annually or RPI whichever is greater.


    TIA
Page 1
    • TrickyDicky101
    • By TrickyDicky101 9th Mar 18, 11:24 AM
    • 3,035 Posts
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    TrickyDicky101
    • #2
    • 9th Mar 18, 11:24 AM
    • #2
    • 9th Mar 18, 11:24 AM
    It means every 10 years the GR will rise by a minimum of 28% (2.5% compounded over 10 years) or by the RPI increase over that 10 year period, whichever results in a higher GR charge.
    • RedRuby
    • By RedRuby 9th Mar 18, 11:49 AM
    • 98 Posts
    • 70 Thanks
    RedRuby
    • #3
    • 9th Mar 18, 11:49 AM
    • #3
    • 9th Mar 18, 11:49 AM
    The compounded annually bit is specifically what I don't understand.

    Does that mean that every year the GR is goes up by at least 2.5% (like compound interest on a savings account) and then at the 10 year mark all that interest is taken into account on top of the ground rent and added to it?

    I'm just going to put an example of some figures below, could anyone tell me if I'm calculating it right (assuming that RPI isn't more than 2.5%)

    Year 1 Ground rent = 200
    Year 2 Ground rent = 200 plus an increase of 2.5% = 205
    Year 3 Ground rent =205 plus 2.5% =210
    Year 3 Ground rent =210 plus 2.5% =215
    Year 3 Ground rent =215 plus 2.5%= 220
    Year 4 Ground rent =220 plus 2.5% =225
    Year 5 Ground rent= 225 Plus 2.5%= 230
    Year 6 Ground rent =230 plus 2.5% =235
    Year 7 Ground rent =235 plus 2.5% =240
    Year 8 Ground rent =240 plus 2.5% =246
    Year 9 Ground rent =246 plus 2.5% =252
    Year 10 Ground rent =252 plus 2.5% = 258

    So in year 10 the ground rent will be 258 but between year 2- year 9 will the ground rent payable still have been 200? or will it be payable like those figures above with the RPI added?

    Also if you were a buyer would like clause be an off putting no no?
    • da_rule
    • By da_rule 9th Mar 18, 12:37 PM
    • 2,684 Posts
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    da_rule
    • #4
    • 9th Mar 18, 12:37 PM
    • #4
    • 9th Mar 18, 12:37 PM
    How does the lease extension come into this? I assume you're negotiating an informal extension, as ground rent cannot be charged on leases that you extend the statutory way.
    • Tom99
    • By Tom99 9th Mar 18, 1:08 PM
    • 2,244 Posts
    • 1,522 Thanks
    Tom99
    • #5
    • 9th Mar 18, 1:08 PM
    • #5
    • 9th Mar 18, 1:08 PM
    The compounded annually bit is specifically what I don't understand.

    Does that mean that every year the GR is goes up by at least 2.5% (like compound interest on a savings account) and then at the 10 year mark all that interest is taken into account on top of the ground rent and added to it?

    I'm just going to put an example of some figures below, could anyone tell me if I'm calculating it right (assuming that RPI isn't more than 2.5%)

    Year 1 Ground rent = 200
    Year 2 Ground rent = 200 plus an increase of 2.5% = 205
    Year 3 Ground rent =205 plus 2.5% =210
    Year 3 Ground rent =210 plus 2.5% =215
    Year 3 Ground rent =215 plus 2.5%= 220
    Year 4 Ground rent =220 plus 2.5% =225
    Year 5 Ground rent= 225 Plus 2.5%= 230
    Year 6 Ground rent =230 plus 2.5% =235
    Year 7 Ground rent =235 plus 2.5% =240
    Year 8 Ground rent =240 plus 2.5% =246
    Year 9 Ground rent =246 plus 2.5% =252
    Year 10 Ground rent =252 plus 2.5% = 258

    So in year 10 the ground rent will be 258 but between year 2- year 9 will the ground rent payable still have been 200? or will it be payable like those figures above with the RPI added?

    Also if you were a buyer would like clause be an off putting no no?
    Originally posted by RedRuby
    Yes you have the 2.5% compound near enough, I think 200 over 10 years would be 256.02. Have you quoted the full rent review clause as its not clear how 100pa increases to 200 pa?

    So if GR is fixed at 200pa but after 10 year the ground rent will increase by 28% to 256.02 or more if RPI over those 10 years was higher than 28%.

    2.5% or RPI whichever is the higher is not too bad and should not put to many people off, its the one's which double every 10 years which are going to be unsaleable.

    If you extend the lease using the statutory approach the ground rent will reduce to a peppercorn but you will have to buy out the ground rent so the fact it rises every 10 years will make it more expensive to extend the lease that if it was a fixed ground rent.

    If you are a buyer and the seller has owned the flat for 2 years you can get the seller to serve a lease extension notice then assign it to you. You can then extend the lease straight away without having to wait 2 years.
    Last edited by Tom99; 09-03-2018 at 1:11 PM.
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