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  • FIRST POST
    • Leon12
    • By Leon12 11th Oct 18, 10:52 PM
    • 23Posts
    • 1Thanks
    Leon12
    Ground Rent in relation to mortgage approval and renewing lease
    • #1
    • 11th Oct 18, 10:52 PM
    Ground Rent in relation to mortgage approval and renewing lease 11th Oct 18 at 10:52 PM
    Hello,


    I am in the process of buying a leasehold flat and this is currently going through the solicitors. I have already had my mortgage approved by Metro Bank.


    The annual ground rent on the flat is higher than average at 326.38 and the service charge is 957.56 giving an annual total of 1283.94 or 107 per year. This is fine for me as I have done my incomings and outgoings calculations. This post focuses on the ground rent and not the service charge.


    Yesterday I received a letter from my solicitors saying that as the ground rent is above 250, they need to let my bank know as if I was ever to fall into arrears with it, the freeholder would have a legal right to repossess the property without prior consent of the mortgage company and therefore the mortgage company need to know about it. I believe this will be fine with Metro as it was briefly discussed in the initial application meeting I did with them.


    My concern centres on when it comes to selling the house as apparently some banks may have a problem with this and refuse to grant a mortgage which could make it harder for potential buyers and in turn make it harder for me to sell. My questions are:


    1. I read a few articles that seemed to suggest that renewing a lease (113 years currently remaining on the flat I am buying) results in the ground rent being reduced to a peppercorn or gets rid of it completely. One example is https://www.lease-advice.org/advice-guide/lease-extension-getting-started/) - see the paragraph immediately under the orange 'Go to section' button and the act in question is the Leasehold Reform Housing & Urban Development Act 1993. Is this the case in law (would it definitely happen that the ground rent would be removed) or is it down to the lease renewal negotiations I would have with the freeholder? I struggle to see the connection between renewal of the lease and the ground rent?
    2. When renewing a lease, how is the cost of renewal determined? Is there a set formula to decide it or any methodology or is it entirely down to the freeholder to just charge whatever they like? That doesn't seem fair if it is the case? Could the freeholder for example just decide that they want to charge me 30,000 and stick to their guns? Do I have any legal support here to make sure I get a fair deal? I have visited some online government website based lease extension calculators and they seem to be suggesting the cost should be around 5000 - 7000 which would be OK for me if that is the case.
    3. When a lease of this kind is renewed, how long is it renewed for? Is it a statutory 90 years?
    Thank you for taking the time to read this rather lengthy post and any help would be very much appreciated.


    Thanks,


    Leon
Page 1
    • Tom99
    • By Tom99 12th Oct 18, 2:19 AM
    • 3,099 Posts
    • 2,151 Thanks
    Tom99
    • #2
    • 12th Oct 18, 2:19 AM
    • #2
    • 12th Oct 18, 2:19 AM
    If you go the statutory route, which is the one you are referring to, its a lease extension of +90yrs and removal of ground rent that you get, not a lease renewal.
    The freeholder has no option but to grant you those terms but the price is negotiable and if you can't agree, referred to a Tribunal.
    There is a fair amount of evidence as to how much you might pay and various online calculators to give you an idea.
    All the calculators assume the ground rent is fixed for the whole term but the odd amount of yours looks like it has been subject to some sort of indexed review and also will have further upward reviews in the future. That will make the cost of the lease extension more expensive.
    You have to have owned the flat for 2 yrs before you can serve a section 42 lease extension notice or, if the seller has already owned for 2yrs, they can serve a notice now and assign it to you.
    There is currently new legislation being proposed to simplify the lease extension process, maybe introducing some standard valuation factors and reducing costs because at the moment you would pay both your surveyors and legal cost plus the freeholders as well.
    With a term of 113yrs you have plenty of time to wait and see what this new legislation will bring so, unless you are desperate to clarify the situation, it will probably be cheaper in the long run to wait and see.
    • Leon12
    • By Leon12 13th Oct 18, 2:44 PM
    • 23 Posts
    • 1 Thanks
    Leon12
    • #3
    • 13th Oct 18, 2:44 PM
    • #3
    • 13th Oct 18, 2:44 PM
    Hi Tom,


    Many thanks for your reply which is very useful indeed. So it seems my research was correct in that case that its a 90 years extension to the current lease and the ground rent would be removed. Im still confused though as to why extending by 90 years would result in the removal of the ground rent as I struggle to see the connection between the lease length and the ground rent - is that just one of the conditions of the statutory renewal under current this law? Either way it is a good thing of course.


    As another question - Should I take this path and extend for 90 years and remove the ground rent and then sell in say 5 years, would the same terms of the lease then move to the new buyer? So they wouldn't have to pay the ground rent either as they would be buying the same lease from me - is that correct? One of the reasons I had the thought about extending it was to remove the higher than normal ground rent and therefore make it more appealing to a buyer down the line.


    I too have read that leasehold law is possibly going to be seeing some changes in the near future and I agree it is definitely better for me to wait and see what happens with that first. I will have to do that anyway due to the 2 year rule as I do not wish to go down the route of having the current seller start that process before I have moved in.


    Many thanks,


    Leon
    • Tom99
    • By Tom99 13th Oct 18, 2:56 PM
    • 3,099 Posts
    • 2,151 Thanks
    Tom99
    • #4
    • 13th Oct 18, 2:56 PM
    • #4
    • 13th Oct 18, 2:56 PM
    Yes your extended lease and peppercorn rent can be assigned to whoever you sell to.
    One of the things being considered in the new legislation is whether the leaseholder can mix and match, remove ground rent, extend lease or both.
    • Leon12
    • By Leon12 15th Oct 18, 10:33 PM
    • 23 Posts
    • 1 Thanks
    Leon12
    • #5
    • 15th Oct 18, 10:33 PM
    • #5
    • 15th Oct 18, 10:33 PM
    Sounds good! Thanks again Tom and much appreciated


    Cheers,
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