Extortionate ground rent review increase by 2840%

by Readers Question

11:40 AM, 20th July 2015
About 3 years ago

Extortionate ground rent review increase by 2840%

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Extortionate ground rent review increase by 2840%

I’ve been served with a notice for a ground rent increase from £50 to £1470 by my landlord for a freehold house in a village near Norwich. cash

My house is attached to a number of flats which are also faced with a similar increase by the landlord although he has just singled me out to take to an arbitration. The value of the house was £44,000 25 years ago and recently valued at £125,000. The ground rent he is asking is similar to the value in Knightsbridge and is almost a 3000% increase on the previous ground rent!

An arbitrator has been appointed by the RICS. There is a rent review clause in the lease which applies every 25 years. The two thirds rateable value clause is also within the lease schedule, although I understand that this has been abolished. Surely this doesn’t mean that he can ask for what he likes?

Carolyn



Comments

Ian Narbeth

15:23 PM, 20th July 2015
About 3 years ago

Hi Carolyn
It all depends on the terms of the lease. (There are some nefarious developers who play a very long game, by inserting onerous ground rent clauses into leases and then waiting the 20 or 25 years to catch tenants out. ) I recommend you contact the solicitor who acted when you purchased and ask them about it.

You should also see if the other flat lessees will chip in to the cost of the arbitration. They should do this because if the landlord establishes a high comparable rent figure with you he will pick the others off one by one. It is worth his while (but not yours if you are on your own to throw resources at the arbitration).

Freda Blogs

15:26 PM, 20th July 2015
About 3 years ago

Carolyn

It is difficult to advise without seeing the lease and the actual wording of the rent review provision.

It could be a good thing that you a have a third party referral so that someone independent is looking at the matter, and whose decision will be final.

However, assuming it is an Arbitrator (not an Expert Witness, who operate under different rules - you must check), he/she can only determine based on the information put in front of them, and work within strict timetables, so unless you have sufficient expertise to prepare the submission and provide the evidence to support your case, you must seek expert advice as soon as possible. Do not delay because of the timescales, which are usually fixed.

If you don't know anyone locally, get in touch with the RICS who may be able to give you the names of valuers locally with relevant expertise..

Good luck.

Neal Craven

16:08 PM, 20th July 2015
About 3 years ago

I agree with the above i.e.

The lease should set the mechanism for establishing the revised rent and
You must seek professional advice from a suitably qualified and experienced surveyor especially if the referral is to an arbitrator but also if it’s an independent expert.

Additionally if your surveyor doesn’t think the rent review provisions in the lease are clear you may need a legal opinion from a solicitor or barrister.

Tony Lilleystone

16:34 PM, 20th July 2015
About 3 years ago

Hi Carolyn

I note that you say that you own a freehold house, but I assume it is actually leasehold if you are being asked to pay a ground rent.

Although they are a fact of life for commercial property rent review (or escalator) clauses are less common in residential leases. They are a trap for the unwary and (dare I say it) solicitors and other conveyancers often fail to realise the implications of such clauses when acting for buyers of leasehold property and fail to advise clients properly of their potential effect.

It will pay you to get some expert advice both on the wording of the clause in your lease and relevant property values and comparables to put before the arbitrator. I agree that it might be a good idea to approach the owners of other properties affected by similar clauses for help with costs but being cynical I wouldn't expect any great response.

While rent review clauses in commercial leases generally follow a standard formula there is no such standard for residential property and so a surveyor will need to consider the exact wording (and advice from a lawyer may also be worthwhile.)

You mention a “two thirds rateable value” clause but I am not quite sure what this means. However although rateable values on residential property are usually irrelevant today the old pre-1990 values are still used by water companies to assess charges on properties which don't have a water meter so they or your local authority should be able to give you this information.

Perhaps you should also consider whether you are entitled to buy the freehold under the Leasehold Reform Act 1967, which applies to houses, and if so the likely cost. Have a look at the Leasehold Advisory Service website for more information about this. ( http://www.lease-advice.org/publications/documents/document.asp?item=15 )

Anon

23:46 PM, 20th July 2015
About 3 years ago

May be they are trying to get people to buy the Freehold.....

Puzzler

8:47 AM, 21st July 2015
About 3 years ago

Seems disproportionate compared to other lease increases I have seen. Are you sure it is just ground rent and there's not an element of service charge for work that the freeholder is proposing to the common areas?

Lynne Davis

13:03 PM, 25th July 2015
About 3 years ago

No Puzzler, it probably will be just the ground rent; the owners of leasehold houses are usually responsible for their own maintenance and have no service charges to pay unless there are communal grounds to be maintained. As others have said, this is a cynical ploy to extract extra money from the freehold. Unfortunately, if the lease allows for it then I don't think that much can be done about it... except possibly to sue the original conveyancer for the losses arising as a result of their failure to spot the issue.

I've seen a similar scenario with three different houses near me, at least two of which had the same freeholder: each house had had a 99-year lease with a 10-year ground rent review clause. Upon reaching the 10-year threshold, the ground rent had shot up from around £50pa to over £2000pa. This was justified as being the appropriate "modern ground rent" for the plot (reached by a standard calculation). The houses themselves would each only have been worth in the region of £80-100K with freehold. Two of these houses went to auction; I saw the third one when it first came onto the market (through an agent) but I don't know what happened to it after that.

The "modern ground rent" on a leasehold house is usually only used in calculating the price for purchase of the freehold, or, if the leaseholder can't afford the necessary lump sum, in extending the lease... and then (I believe) it only kicks in after the original lease expires, so a MGR calculated at £2K today might only be equivalent to £50 or £100 in today's money by the time it actually has to start being paid.


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