It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

# Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
• FIRST POST
• Cfrankie32
• 12th May 18, 8:24 AM
• 7Posts
• 0Thanks
Cfrankie32
Hi,

I'm in the process of purchasing a flat for £230,000 And my solicitor has flagged that my ground rent could potentially be onerous. I have read a lot on this since she flagged this to me and I am lead to believe that any ground rents starting over 0.1% of the value and that double every x amount of years are indeed onerous.

However my ground rent starts at £230 and raises every 5 years inline with RPI, which I'm also lead to believe is pretty common practise.

I took this to my solicitor who said that she had a friend take a look at it and the way my ground rent is calculated could mean I'm paying over £1000 in 10 years. I'm really not sure how she came up with this figure after reading into other similar clauses found on this site.

That said i obviously want to be informed as best as possible before deciding whether to purchase or not. So below is the calculation for my ground rent as per my lease, if anyone can shed some light on how she got to that figure or if they agree that (allowing for the fact that inflation stays around 2-3%) the rent would increase at a less aggressive pace.

The indexed rent for a review date shall be determined by multiplying the rent by the index value of the RPI for the month two months before the month in which that Review date falls or the Base Value whichever is the greater, then dividing the product by the index value of the RPI of the Base RPI month.

Page 1
• 12th May 18, 8:35 AM
• 1,928 Posts
• 2,252 Thanks
Using compound interest RPI of 2% a year gives a multiplier of approximately 1.22 after 10 years. £% gives 1.34. Even at 5% it only doubles every 14 years. I do wonder however why they are using RPI not CPI (which is almost always lower). i would also ask what is this ground rent for, other than to provide an ever increasing income stream for the developer, or whichever money grabber buys it.

What is the service charge? Is there something similar involved there, or can they raise that by whatever they like?

To me there is no reason whatsoever for ground rent to be as high as that, or to constantly increase. Personally I wouldn't touch a flat with an agreement like that.
• anselld
• By anselld 12th May 18, 8:46 AM
• 6,115 Posts
• 5,880 Thanks
anselld
I took this to my solicitor who said that she had a friend take a look at it and the way my ground rent is calculated could mean I'm paying over £1000 in 10 years. I'm really not sure how she came up with this figure after reading into other similar clauses found on this site.
Originally posted by Cfrankie32
RPI would need to be 15.8% for the next 10 years for that to happen.

RPI is not particularly onerous. The legal fees to change the lease to CPI would probably be more onerous than the savings. (unless it is still being drafted in which case no harm in asking)

i would also ask what is this ground rent for
The clue is in the name.
• Cfrankie32
• 12th May 18, 9:05 AM
• 7 Posts
• 0 Thanks
Cfrankie32
Thanks I agree I don't think it would double every 10 years.

Service charges can be challenged throughout the term of the lease if the leaseholder feels the charges are unfair, however once the lease has been signed the ground rent is very unlikely going to be changed again or be challenged hence why I want to get it right now. It's a brand new flat so I am still able to negotiate.
• eddddy
• By eddddy 12th May 18, 1:06 PM
• 7,443 Posts
• 7,470 Thanks
eddddy
What is the service charge? Is there something similar involved there, or can they raise that by whatever they like?
FWIW, service charges don't work like that.

They are the cost of repairing/maintaining the building etc. If little work is needed one year they will be low. If a lot of work is needed in another year (e.g. repairing the roof, repainting the windows, refurbing the lift!!!), the service charge will be high.

There are also admin fees (e.g. for giving consent to let), but as Cfrankie says, they can be challenged at a tribunal.
• eddddy
• By eddddy 12th May 18, 1:25 PM
• 7,443 Posts
• 7,470 Thanks
eddddy
The indexed rent for a review date shall be determined by multiplying the rent by the index value of the RPI for the month two months before the month in which that Review date falls or the Base Value whichever is the greater, then dividing the product by the index value of the RPI of the Base RPI month.
Originally posted by Cfrankie32
Just to be clear, is your solicitor saying...
• A ground rent that increases with RPI is onerous, or
• A ground rent that increases with RPI might be OK, but the clause above is faulty (and will cause increases much greater than RPI)?

How does the lease define "Base Value" and "Base RPI Month"?

• Cfrankie32
• 12th May 18, 1:43 PM
• 7 Posts
• 0 Thanks
Cfrankie32
Eddddy

I have had a look at the lease and on answer to your questions above I have the following

Base RPI month: Jan 17

Base value: Means the figure which is created by the addition of 100 to the index value of the RPI for the previous Review date ( if no Review date the date of the lease)
• Cfrankie32
• 12th May 18, 1:49 PM
• 7 Posts
• 0 Thanks
Cfrankie32
Eddy

She said this lease is onerous and when mentioned that ground rent increasing with RPI seems to be a common practise (as did my mortgage advisor) she told me she had a friend look at the calculation and said i could be paying as much as £1000 in 10 years which makes it onerous.

I'm just struggling to see how she has reached this figure. Unless I have missed something in the wording?

Thanks
• eddddy
• By eddddy 12th May 18, 1:50 PM
• 7,443 Posts
• 7,470 Thanks
eddddy
I have had a look at the lease and on answer to your questions above I have the following

Base RPI month: Jan 17

Base value: Means the figure which is created by the addition of 100 to the index value of the RPI for the previous Review date ( if no Review date the date of the lease)
Originally posted by Cfrankie32
So I'm no expert - but that clause looks wrong.

I think that the "Base RPI Month" should be the previous Review date.

Otherwise GR will escalate at an exponential rate (far higher than RPI).
Last edited by eddddy; 12-05-2018 at 2:02 PM.
• Cfrankie32
• 12th May 18, 1:56 PM
• 7 Posts
• 0 Thanks
Cfrankie32
Okay this is maybe where the red flags have come from then. I will definetly look at getting the Base RPI month changed

• Cfrankie32
• 12th May 18, 2:17 PM
• 7 Posts
• 0 Thanks
Cfrankie32
Okay I've just done the sums (I think) and it still doesn't add up. Unless are you supposed to add the product of the calculation onto the rent you already pay?

So for instance I pay £230 rent now.
At my next review (say 10% increase in RPI over 5 years) I've had a look and the RPI value should roughly be 310. The RPI for Jan 17 (Base RPI month) is 265.5

So my sums are

(Rent x RPI at rent review)÷ Base RPI Month

230 x 310 ÷ 265.5 = £268
Is this the new GR charge or do I now have to add that to the original rent i was paying? Which would make it £498

That is the only way I can see that the GR would be £1000 in 10 years

I was under the impression that £268 would be the new figure? Please correct me if I'm wrong?! This is quite confusing.
• anselld
• By anselld 12th May 18, 2:29 PM
• 6,115 Posts
• 5,880 Thanks
anselld
Okay I've just done the sums (I think) and it still doesn't add up. Unless are you supposed to add the product of the calculation onto the rent you already pay?

So for instance I pay £230 rent now.
At my next review (say 10% increase in RPI over 5 years) I've had a look and the RPI value should roughly be 310. The RPI for Jan 17 (Base RPI month) is 265.5

So my sums are

(Rent x RPI at rent review)÷ Base RPI Month

230 x 310 ÷ 265.5 = £268
Is this the new GR charge or do I now have to add that to the original rent i was paying? Which would make it £498

That is the only way I can see that the GR would be £1000 in 10 years

I was under the impression that £268 would be the new figure? Please correct me if I'm wrong?! This is quite confusing.
Originally posted by Cfrankie32
£268 would be correct in that example.
RPI indexation is very standard and straightforward. If the wording is defective that is indeed a matter for the solicitor, but there is only one answer as far as the maths is concerned.
• Tom99
• By Tom99 12th May 18, 2:57 PM
• 3,620 Posts
• 2,538 Thanks
Tom99
The indexed rent for a review date shall be determined by multiplying the rent by the index value of the RPI for the month two months before the month in which that Review date falls or the Base Value whichever is the greater, then dividing the product by the index value of the RPI of the Base RPI month.
Base RPI month: Jan 17

Base value: Means the figure which is created by the addition of 100 to the index value of the RPI for the previous Review date ( if no Review date the date of the lease)

Originally posted by Cfrankie32
So assuming RPI index is 310 at review date your calculation should be:

Base RPI as at Jan 2017 = 265.5
Base Value = 265.5 + 100 = 365.5

So Base Value is higher than RPI at review date:

Rent at year 5 = £230 x 365.5 / 265.5 = £317 pa

ie there is a built in min increase at the 1st review of 37.7%. This %age will drop slightly at subsequent reviews as +100 becomes a smaller percentage.
• Cfrankie32
• 12th May 18, 3:09 PM
• 7 Posts
• 0 Thanks
Cfrankie32
This helps thank you
• London54
• By London54 13th May 18, 4:24 PM
• 9 Posts
• 1 Thanks
London54
I am also buying a new apartment at the moment. I have a similar clause in my lease and waiting for my solicitor to provide me with a worked example as well as the source of the figures for the example.

Will let you know the response I get. Would be interested to hear if you find anything with this that would result in you not proceeding with the purchase.

I've been reading some horror stories online about ground rents growing at such a rate that they make the property unaffordable and unsaleable after about 50 years (probably when people like you and I are hoping to retire!)