Ground Rent – Demand for Payment

by Readers Question

16:09 PM, 18th December 2012
About 8 years ago

Ground Rent – Demand for Payment

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Ground Rent – Demand for Payment

Ground Rent - Demand for PaymentHuw has received a strange “Demand for Payment” of Ground rent and would like to raise this topic with the Property118 community.

“In Jan’2007 I purchased a leasehold terraced property in Wales from a mortgage company following a previous repossession.  At the time neither myself, my solicitor nor the mortgage company could locate the Freeholder.  Having spoken to the neighbours, at the time, it seems that their last few years cheques for ground rent had never been cashed and some had started to be returned to sender.

I therefore thought nothing further of this until last week. I completed the renovation of the property and it has been rented out for the past 5 years.

Last week I was contacted by my tenants who informed me that I had received a letter demanding payment of this coming year’s Ground Rent plus eight previous years’ worth of arrears.

The actual sum is very small, as the ground rent is only £2.25 per annum and as such payment of this and future years would not be of any great concern.  However, the heavy handed wording of the letter, the short time specified for payment before administration charges would be added (the letter arrived at the property on the 14th December however was dated the 23rd November and payment is due by the 25th December) and the fact they are chasing arrears from a period before I owned the property, set a few alarm bells ringing.

I’m out of the country at the moment so I’m not in a position to check with the neighbouring property owners whether they received similar demand letters.  However, I’m guessing they all have the same letters, so that’s about 100 houses

I’m sure this is not an ideal situation for some of the elderly occupants of the street, especially as the demands contain hints of large administration charges being levied if the bill is not paid, not the best Christmas gift!!!

I wonder if any of your other Landlords have experienced similar demands and know if these arrears can be legally claimed.

Regards

Huw


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Comments

Annette Stone

18:56 PM, 18th December 2012
About 8 years ago

To be valid a ground rent demand has to be a proper Notice as set out in legislation and has to have the name and contact details of the freeholder clearly shown . Irrespective of what the freeholders are demanding they cannot go back more than six years and claim for unpaid ground rent.

This is obviously a brief answer but I am sure you do not want me to go into too much detail. The main thing is to avoid administration charges which will vastly outweigh the amount of ground rent owed..

My view would be to get the ground rent paid for the past six years to avoid the administration charges which can be very high and when you get back have a look at the demand and see if it comes from a new freeholder or the one who has disappeared and you are entitled to enquire into this.

For the future I would suggest that you ask for their bank details and make the payment by standing order to avoid the possibility of administration charges and notify the freeholder that this is what you want to do. They may prefer you not to do this so that the opportunity for administration charges occurs every year in which case you will just have to be vigilant.
As an added piece of advice depending on how long your lease is you may be advised to buy the freehold as whilst there is an outside freeholder irrespective of the amount of ground rent payable they still have considerable abilities to charge for things like Consents and Notices which arise from time to time as well as for permissions to extend etc.
I have been a managing agent (as well as a landlord) for 21 years and if anyone would be interested in our services Mark can provide my details if that does not contravene the rules of Property 118.

Mark Alexander

20:05 PM, 18th December 2012
About 8 years ago

Thanks for commenting Annette and also for doing such a good job of managing the freehold interests at London Road Portsmouth for AFP Management (Portsmouth) Limited. I will be very happy to pass on your details if anybody emails me to request them - mark@property118.com

3:02 AM, 19th December 2012
About 8 years ago

Yes I receive them ALL the time and don't pay them because I can't afford to do!
You should ensure that ALL contact regarding your leasehold property is sent to an address you advise the Freeholder of.
Under NO circumstances is ANY correspondence concerning the leasehold property to be sent to the address.
You are NOT responsible for ANY ground rent until you completed purchase of the property.
The Freeholder has to pursue recovery of the ground rent arrears from the previous leaseholder.
As the ground rent is so small you ONLY have to pay what is owed from the date you purchased the property.
I do NOT pay any service charges or ground rent which forces the lender to pay them and add to the mortgage as otherwise they would lose 1st charge over their mortgaged property.
This is a brilliant way to increase mortgage debt when the mortgage lender would not advance further monies to pay these charges.
It also has the added advantage of increasing the mortgage debt to prevent any charges being exercised as the debt keeps on increasing above the equity value of a property making it financial suicide for a lender to force a sale.
This also has the effect of preventing 2nd charges being exercised to prevent a 2nd charge forced sale.
With the mortgage rate being so low it is far cheaper and easier to service the debt than come up with large lump sums.
This situation occurs with me and costs me an extra per month
£14.95 interest for 4 properties...............................which I can just about manage!
£6000 per year in SC and GR I could NOT afford.
I am hoping to build up even more cheap debt at the lender's expense.
They do charge fees for all this; but so what!
Of course if interest rates increase; that is a whole different ball game!!!

Annette Stone

10:06 AM, 19th December 2012
About 8 years ago

I think that Paul's advice may be a little outdated. Whilst quite a lot of people used to do this now most lenders will not advance extra funds without a County Court Judgment or an LVT determination and in many cases without, in addition, at least a date for Hearing for a Section 146 forfeiture application. SInce most freeholders will now instruct solicitors or debt collectors on unpaid ground rent and service charges each year and the fees for instructing solicitors, liasing with mortgagees and going to Court and seeing things through can top £1,500 this is usually a game no longer worth playing.

Some managing agents will offer lessees, in cases of genuine financial hardship, the opportunity to agree for the managing agent to apply to the mortgagee to pay the funds in order to avoid proceedings. Of course, even with the best will in the world there is no way of knowing how mortgagees will react to such an application on an annual basis

This is what lenders do when there is equity in the property. If a lessee is in negative equity or seriously in arrears it's usually straight to forfeiture

Although my profession is that of a managing agent I have built up a fair sized portfolio of buy to lets for my pension. As a professional landlord part of my business expenses are ground rent and service charges and always provided these are fair and above board why shouldn't I pay them?

Annette Stone

11:09 AM, 19th December 2012
About 8 years ago

Just a quick further comment whilst Paul is correct in saying that Huw is not liable for ground rent from the time before he completed his purchase of the house there is a legal anomal in that if the arrears of ground rent are above the threshold the landlord can still apply for forfeiture of the lease. One of the thresholds is that the arrears have been outstanding for more than three years regardless of the amount.

Antony Richards

13:19 PM, 19th December 2012
About 8 years ago

I agree Annette that Paul's 'advice' is possibly not the best. I had to take a leaseholder to court two years ago for a debt of about £900. It cost her £1900 in fees. She persists in not paying so I am in the process of going through court and LVT again. With LVT and court costs etc it is likely to cost her £4000 against a debt of £800. Best advice is to pay what is CORRECTLY asked for

Mark Alexander

18:30 PM, 19th December 2012
About 8 years ago

I would have thought none payment of ground rent would also put a mortgage into default and incur more charges too. I'm very surprised that Paul's mortgage lenders have not appointed LPA receivers to collect the rents from his portfolio and manage it themselves until such time as they can sell for a sufficient amount to clear their debts or at least cut their losses.

Anthony Endsor

20:21 PM, 19th December 2012
About 8 years ago

Well there is no way you should be paying ground rent for the years you didn't own the property. You need to contest that and sort it urgently as the longer this is left, the worse it will get. Whatever you do, DO NOT IGNORE a demand for ground rent. Freeholders can be very heavy handed when it comes to collection of even a small sum. I had a situation some time ago where letters demanding ground rent had gone to my tenant, instead of me. This was my fault as I forgot to tell the freeholder I had changed address, having previously lived in the property concerned. However it proved to be a costly error, and could have been disastrous.
The ground rent was unpaid for 2 years before my tenant finally came round and gave me a letter addressed to me, which was a demand for ground rent. Because this was unpaid for 2 years, I had missed letters warning me of admin charges, and now had to pay an extra £81 on top of £13.50 unpaid ground rent. A few days later I received a letter from the mortgage company of the property, saying they were paying this on my behalf and would be charging a further £156, which would be added to next month's mortgage payment, and if not paid, the house would be repossessed. I will add, the property was marginally in positive equity at the time.
So the freeholder had written to the mortgage company threatening to take possession of the property. The mortgage company therefore had to act.
So there is no getting out of paying what you owe I'm afraid, and for £2.25 a year it is utterly ridiculous to risk the house being repossessed I'm sure you would agree.

Annette Stone

21:41 PM, 19th December 2012
About 8 years ago

Absolutely Mark. I agree with your comments. I did not want to be quite so brutal in my reply to Paul but believe me mortgagees are very quick off the mark now with repossessions in cases where service charges are continually not paid, particularly when their equity is being reduced by additional borrowers to cover what are the lessees' expenses.

There is also a question of how you conduct your business. I understood that when you bought a leasehold property you entered into a contract between a willing buyer and a willing seller based on a lease which you are taking over. Part of that lease includes the responsibility to pay ground rent, insurance and service charges and at what point does it become acceptable to renege on a contract?

21years of management have taught our senior staff to be able to ascertain who is really in difficult circumstances and for those people we always go the extra mile and try and help them obtain additional funds from their mortgage company (which is a time consuming procedure) without making any additional management charge but, in common with most managing agents, we are also aware when we have someone who is clearly playing the system to their own advantage and if they do incur very high administration charges - as Antony says so be it!!!

23:45 PM, 19th December 2012
About 8 years ago

I wouldn't recommend my way of doing things as best practice; but it is a valid response to managing when not possible to afford things.

No the lender will not foreclose; it would lose too much and therefore it will continue to pay all charges that I don't pay.

They don't bother with CCJ's as they know I won't pay them.

I just sign a letter the managing agents send giving permission for the lender to pay the charges; job done.

Can't really see the lender wishing to lose £150000 if not more for the sake of £5000 per year.
But I appreciate it is possible and do note your advices.

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