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  • FIRST POST
    • akorn77
    • By akorn77 7th Jan 20, 9:45 AM
    • 12Posts
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    akorn77
    Flat Purchase - Escalating Ground Rent
    • #1
    • 7th Jan 20, 9:45 AM
    Flat Purchase - Escalating Ground Rent 7th Jan 20 at 9:45 AM
    Hi All,

    I've found a flat I'm very interested in, however it has an escalating ground rent and I'm very worried about it impacting future re-sale. I think the seller is aware of this, and seems to be super keen to shed it - she even offered to sell it to me chain free! Any thoughts?

    Lease - 236 Years
    Ground Rent - 150; doubling every 25 years.

    Thanks
Page 2
    • eddddy
    • By eddddy 9th Jan 20, 3:35 PM
    • 8,918 Posts
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    eddddy
    Thank, makes sense. This is called Deed of Variation isn't it? Or is that something different.
    Originally posted by akorn77
    It's better to call it a 'lease extension'. Then everyone will know what you mean.

    A deed of variation is used to vary (or change) a lease. Extending a lease is one example of varying (or changing) a lease.

    There are many other ways of varying (or changing) a lease as well.


    Does the Freeholder have the right to reject those numbers and ask for whatever price they want though?
    Originally posted by akorn77
    If you follow the statutory route, the freeholder can challenge the the way the numbers are calculated.

    e.g. Your valuer might believe that yield of 7% should be used, but the freeholder's valuer believes that 6% should be used.

    But they cannot 'set whatever price they want'.
    • akorn77
    • By akorn77 15th Jan 20, 3:14 PM
    • 12 Posts
    • 2 Thanks
    akorn77
    Just to circle back here - wouldnt it be simpler to buy the share of freehold?
    • Tom99
    • By Tom99 15th Jan 20, 4:12 PM
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    Tom99
    Just to circle back here - wouldn't it be simpler to buy the share of freehold?
    Originally posted by akorn77
    You can only do that in conjunction with the other leaseholders and even if you do buy jointly buy the freehold you are still stuck with the lease you have in terms of it's length and ground rent until the joint freeholders agree to change things.
    Also you would have to purchase the freehold at market value which would include the benefit of any rising ground rent so it would be no cheaper than extending the lease.
    • Marvel1
    • By Marvel1 15th Jan 20, 4:39 PM
    • 4,641 Posts
    • 5,270 Thanks
    Marvel1
    Ma way of thinking:

    150 = 12.50 monthly for a year.

    300 - 25 monthly for a year.

    Increase of 12.50 a month after 25 years.

    Considering people renting and an increase say after first year jumps from 30-50 monthly, and most say suck it up as it's the current market, the 25 year increase is nothing.

    However me personally would never buy leasehold.
    Last edited by Marvel1; 15-01-2020 at 4:41 PM.
    • akorn77
    • By akorn77 17th Jan 20, 10:58 AM
    • 12 Posts
    • 2 Thanks
    akorn77
    You can only do that in conjunction with the other leaseholders and even if you do buy jointly buy the freehold you are still stuck with the lease you have in terms of it's length and ground rent until the joint freeholders agree to change things.
    Also you would have to purchase the freehold at market value which would include the benefit of any rising ground rent so it would be no cheaper than extending the lease.
    Originally posted by Tom99
    Noted, thanks. There's ALOT of flats in the building so this wouldnt be feasible then.

    Ma way of thinking:

    150 = 12.50 monthly for a year.

    300 - 25 monthly for a year.

    Increase of 12.50 a month after 25 years.

    Considering people renting and an increase say after first year jumps from 30-50 monthly, and most say suck it up as it's the current market, the 25 year increase is nothing.

    However me personally would never buy leasehold.
    Originally posted by Marvel1
    Price-wise it is reasonable. I'm not a fan of leases but in central london its hard to find decent Share of Freehold flats, that also come with secure parking.

    I have asked the vendor to ask the Freeholder if they would be willing to change terms of the ground rent in the future. The Freeholder is a big company, and there is hundreds of flats in the development so I suspect the answer will be No.

    All a bit disheartening, as the flat ticks all my boxes
    • Crumble2018
    • By Crumble2018 17th Jan 20, 11:05 AM
    • 228 Posts
    • 235 Thanks
    Crumble2018
    I'm not a fan of leases but in central london its hard to find decent Share of Freehold flats, that also come with secure parking.
    Originally posted by akorn77

    I think you'll struggle to find a modern block of flats without an esculating ground rent. (Certainly where I live they are extremely common) Lenders are happy to lend on a 25 year doubling clause, so I'm not sure why you're so worried about it?

    I'm also baffled as to why anyone would want a share of the freehold, as that can lead to all sorts of trouble if your fellow freeholder/s don't want to stump up money for repairs.
    • akorn77
    • By akorn77 17th Jan 20, 11:37 AM
    • 12 Posts
    • 2 Thanks
    akorn77
    I think you'll struggle to find a modern block of flats without an esculating ground rent. (Certainly where I live they are extremely common) Lenders are happy to lend on a 25 year doubling clause, so I'm not sure why you're so worried about it?

    I'm also baffled as to why anyone would want a share of the freehold, as that can lead to all sorts of trouble if your fellow freeholder/s don't want to stump up money for repairs.
    Originally posted by Crumble2018
    Indeed it is very common. However there are many blocks that dont have these types of clauses, but they make up the shortfall by charging expensive services charges 3-5kpa. In retrospect, I'd prefer this over a 3kpa service charge.

    With Share of Freeholders you have more discretion of the block/property & no ground rent I guess. These do often still have services charges and a management company (appointed by Freeholders) so it isn't one big free-for-all dispute.
    • davidmcn
    • By davidmcn 17th Jan 20, 11:43 AM
    • 14,385 Posts
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    davidmcn
    I'm also baffled as to why anyone would want a share of the freehold, as that can lead to all sorts of trouble if your fellow freeholder/s don't want to stump up money for repairs.
    Originally posted by Crumble2018
    I'm baffled as to why anybody would want the freehold to be owned by a third party aiming to make a profit out of everyone.
    • Crumble2018
    • By Crumble2018 17th Jan 20, 12:04 PM
    • 228 Posts
    • 235 Thanks
    Crumble2018
    I'm baffled as to why anybody would want the freehold to be owned by a third party aiming to make a profit out of everyone.
    Originally posted by davidmcn

    I'm basing this on stories I have read where other freeholders wont pay out for repairs/insurance etc. I'd rather be paying someone else to sort these things out for me, but maybe thats just my preference.
    • Tom99
    • By Tom99 17th Jan 20, 12:31 PM
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    Tom99
    I have asked the vendor to ask the Freeholder if they would be willing to change terms of the ground rent in the future. The Freeholder is a big company, and there is hundreds of flats in the development so I suspect the answer will be No.
    All a bit disheartening, as the flat ticks all my boxes
    Originally posted by akorn77
    You can buy out the ground rent after 2yrs or immediately if the seller has owned the flat for 2yrs so I would not place any value on what the freeholder says. If you try and negotiate something outside the statutory process in all likelihood the freeholder will take for a mug and charge more than you might otherwise pay.
    • davidmcn
    • By davidmcn 17th Jan 20, 12:40 PM
    • 14,385 Posts
    • 16,806 Thanks
    davidmcn
    I'm basing this on stories I have read where other freeholders wont pay out for repairs/insurance etc. I'd rather be paying someone else to sort these things out for me, but maybe thats just my preference.
    Originally posted by Crumble2018
    You can appoint a management company to sort things out while remaining in charge. In practice, if the other leaseholders don't want to pay for anything then you've still got problems whoever the freeholder is.
    • akorn77
    • By akorn77 17th Jan 20, 1:17 PM
    • 12 Posts
    • 2 Thanks
    akorn77
    You can buy out the ground rent after 2yrs or immediately if the seller has owned the flat for 2yrs so I would not place any value on what the freeholder says. If you try and negotiate something outside the statutory process in all likelihood the freeholder will take for a mug and charge more than you might otherwise pay.
    Originally posted by Tom99
    My colleague asked a solicitor he knows and the solicitor said the Freeholder has the right to say No, with regards to changing the terms of the ground rent. However it can be disputed via courts which is likely to be an expensive and lengthy process.

    Does this sound correct?

    Edit: Just asked my old solicitor, he echoed what you said. Do a lease extension, and change terms of the ground rent but it will cost money. He told me to ask a surveyor to understand how much it would cost
    Last edited by akorn77; 17-01-2020 at 1:46 PM.
    • Tom99
    • By Tom99 17th Jan 20, 2:08 PM
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    Tom99
    My colleague asked a solicitor he knows and the solicitor said the Freeholder has the right to say No, with regards to changing the terms of the ground rent. However it can be disputed via courts which is likely to be an expensive and lengthy process.

    Does this sound correct?

    Edit: Just asked my old solicitor, he echoed what you said. Do a lease extension, and change terms of the ground rent but it will cost money. He told me to ask a surveyor to understand how much it would cost
    Originally posted by akorn77
    Correct. The freeholder cannot prevent you from buying out the ground rent and extending the lease by 90yrs but they can dispute the price and force referral of the price to a 3rd party tribunal.
    In your case with the reversion so far away the price paid is going to be wholly based on the ground rent so the only variable in the calculation is going to be the discount rate and exactly how you take into account the future ground rent increases.
    Last edited by Tom99; 17-01-2020 at 2:10 PM.
    • akorn77
    • By akorn77 17th Jan 20, 2:28 PM
    • 12 Posts
    • 2 Thanks
    akorn77
    Correct. The freeholder cannot prevent you from buying out the ground rent and extending the lease by 90yrs but they can dispute the price and force referral of the price to a 3rd party tribunal.
    In your case with the reversion so far away the price paid is going to be wholly based on the ground rent so the only variable in the calculation is going to be the discount rate and exactly how you take into account the future ground rent increases.
    Originally posted by Tom99
    Thanks Tom, appreciate your input. It's certainly helped clear things up for me. My solicitor recommended that I try and ask for a discount, due to the future cost of changing the terms.

    I don't suppose you know the mathematical calculations one would need to use to calculate this? Or if you know a super rough figure on how much something like this would cost (based on the figures on OP)?

    I punched into a lease extension calculator and it said 5-6k to increase the lease but obviously doesn't account for escalating ground rent in that calculation. I'd probably hazard a guess and add another 5-10k on and say its going to cost 15k
    Last edited by akorn77; 17-01-2020 at 2:32 PM.
    • Tom99
    • By Tom99 17th Jan 20, 4:10 PM
    • 5,217 Posts
    • 3,678 Thanks
    Tom99
    Thanks Tom, appreciate your input. It's certainly helped clear things up for me. My solicitor recommended that I try and ask for a discount, due to the future cost of changing the terms.

    I don't suppose you know the mathematical calculations one would need to use to calculate this? Or if you know a super rough figure on how much something like this would cost (based on the figures on OP)?

    I punched into a lease extension calculator and it said 5-6k to increase the lease but obviously doesn't account for escalating ground rent in that calculation. I'd probably hazard a guess and add another 5-10k on and say its going to cost 15k
    Originally posted by akorn77
    See my post 18 above, you would need to employ a surveyor if you want a more accurate figure. You need to find out if the ground rent continues to double throughout the term or whether only for the 1st ??years.
    • AdrianC
    • By AdrianC 17th Jan 20, 4:40 PM
    • 27,546 Posts
    • 27,721 Thanks
    AdrianC
    I'm not a fan of leases but in central london its hard to find decent Share of Freehold flats, that also come with secure parking.
    Originally posted by akorn77
    Don't forget that large swathes of central London are part of large estates, so there'll be a headlease in the way. The actual freeholder may well ultimately be the Duke of Wherever.
    • akorn77
    • By akorn77 17th Jan 20, 4:47 PM
    • 12 Posts
    • 2 Thanks
    akorn77
    See my post 18 above, you would need to employ a surveyor if you want a more accurate figure. You need to find out if the ground rent continues to double throughout the term or whether only for the 1st ??years.
    Originally posted by Tom99
    Vendor apparently checked and the lease doesn't say anything about it stopping at any point. So it continues for the next 236 years.

    Don't forget that large swathes of central London are part of large estates, so there'll be a headlease in the way. The actual freeholder may well ultimately be the Duke of Wherever.
    Originally posted by AdrianC
    If there was - how does this impact the situation?
    • AdrianC
    • By AdrianC 17th Jan 20, 4:50 PM
    • 27,546 Posts
    • 27,721 Thanks
    AdrianC
    If there was - how does this impact the situation?
    Originally posted by akorn77
    It doesn't. A lease is still a lease. I'm merely explaining why there's relatively few share-of-freehold flats in central London.
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