Ground Rents on New Flats
Escalating ground rents on new flats has been a hot topic of conversation in legal circles for some time and has recently become a topic in the media with Nationwide announcing that it will not provide mortgages on certain properties.
What do our clients need to know?
Firstly, what is ground rent?
A leaseholder has to pay various sums to the landlord, often through a management company.
These sums include service charge which is a contribution towards the cost of maintenance, repair and replacement of the structure of the building in which the flat is located, common parts, garden paths, driveways, communal gardens, buildings insurance and other services.
Ground rent is exactly what it says it is rent, i.e. a sum of money you pay in return for being allowed to occupy the property‚ just as you would if you were renting a flat or house under a tenancy agreement.
Unlike a tenancy, you will almost certainly have paid quite a large sum for the leasehold (usually called a premium). Because of this ground rents for leasehold properties have traditionally been quite low and sometimes entirely nominal such as the so-called 'peppercorn' rent.
Typically, a 125 year lease might have a ground rent that starts at £250 per annum, and increases by £250 every 25 years, so that the ground rent payable in the final 25 years of the lease would be £1250.
There have been many examples recently of leases of new flats where the ground rent provisions are different.
In some cases the ground rent might begin at a similar amount of £250 per annum but double every 10 years. This means that ground rent payable after 60 years would be £16,000 every year. In other cases, the lease might provide for ground rent to increase by a fixed percentage each year with a similarly dramatic effect.
What is the consequence of these new provisions for our clients?
It could mean that the rent becomes unaffordable for some which could lead to them being sued or potentially even losing the property. In addition it may be difficult to resell or mortgage the flat, or the flat may decrease in value rather than increase just because of the ground rent provisions.
Your solicitor needs to look carefully at the ground rent provisions in every lease and you need to be alert to this.
If you are purchasing the flat with the benefit of a mortgage, your lender needs to be told about the ground rent review provisions if they are unusual or onerous and you should consider getting independent valuation advice from a surveyor.
Our experienced team of residential property solicitors are aware of the issue and if you instruct us to deal with your transaction, they will advise on any term of the lease that concerns them.
To instruct us, simply get in touch
This literature is intended purely as an overview of this area of law and no action should be taken upon it without specific legal advice.