Ground Rent doubling every 10 years – when to sell

by Readers Question

13:17 PM, 3rd February 2016
About 3 years ago

Ground Rent doubling every 10 years – when to sell

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Ground Rent doubling every 10 years – when to sell

I am a landlord and purchased a two bedroom flat in 2012. The Ground rent doubles every 10 years from 2011 linked to RPI. Ground Rent is currently a manageable £250 and in 50 years it will be around £4000 Ground Rent.doubling

The Net yield on the property is very good indeed and make around 5K profit before tax on a 100K property.

My concern is the timing when to sell. I would like to keep the property due to the yield but back of my mind is the ever escalating Ground Rent which may make it unprofitable and unsaleable.

If I sell when the ground rent is £500 in 2022 then it could become a problem to sell the flat and maybe stuck with it or have to substantially reduce the price

I would appreciate other people’s views

Sash



Comments

Neil Patterson

13:19 PM, 3rd February 2016
About 3 years ago

Hi Sash,

Just to clarify do you mean ground rent is doubling every ten years on top of taking RPI into consideration?

Sash D

16:31 PM, 3rd February 2016
About 3 years ago

Reply to the comment left by "Neil Patterson" at "03/02/2016 - 13:19":

Hi Neil

Sorry, its only to the RPI which could mean a doubling of Ground Rent every 10 days depending in inflation.

My concern even though it is extremely profitable flat and probably will recover the cost outlay in 20 years. The fact me or my kids will be lumbered with a flat that is unsaleable, unmortgageable with a massive ground rent which doubles every 10 years (depending on inflation)

I would like to keep the flat even for another 10 years but just back of my mind at what point will the flat become unsaleable and unmortgageable

Thanks

Sash

Neil Patterson

16:36 PM, 3rd February 2016
About 3 years ago

Increasing with RPI seems reasonable to me ???
Along with other general costs, wages, rent etc.
Current RPI is only 1.1% so it would take much longer to double at this rate.

Dr Monty Drawbridge

16:57 PM, 3rd February 2016
About 3 years ago

If it is attached to RPI it means that in real terms, whatever you are paying will be roughly the same as what you are paying now.

£450 ground rent is already pretty common for a new lease on a smallish 2 bed in London now. Doubling every 10 years would be a lot. OTTOMH my leases double every 20yrs - which is roughly equivalent to 3.5% p.a.

Sash D

22:11 PM, 3rd February 2016
About 3 years ago

Thanks for the replies

I read recently in the paper that someone's ground rent was £8K. Unexpectedly jumped from £250 to £8K as they had brought the property in 1960s and everyone was unaware of a clause saying that Ground Rent will double every 10 years. My solicitor also indicated the possibility of doubling of Ground Rent which I was somewhat oblivious too.

Perhaps I am worrying unnecessarily. The clause on the lease agreement says

Revised Rent = £250 * Latest Index Figure/Initial Index Figure

OR

the of the yearly rent payable immediately before the relevant review date and £250 whatever is greater.

Therefore I had a look at the RPI of the last 10 years

Based on initial index figure December 2005 of 193 and December 2005 of 260. If we multiply it by £250 ground rent will be around £337 which is more than manageable

I am not missing anything ?

Thanks a lot

Sash

Science Student

22:27 PM, 3rd February 2016
About 3 years ago

Would it be feasible to serve notice on the landlord requesting a lease extension under the act? This would give you 90 extra years on your lease and reduce the ground rent to 0. Of course the cost of the extension would depend on the current length of the lease, assuming it is relatively long ( circa 100 years) the effect of the rising ground rent would be relatively small.

Sash D

22:34 PM, 3rd February 2016
About 3 years ago

Reply to the comment left by "Science Student" at "03/02/2016 - 22:27":

The lease I think is 999 years

Sash D

22:48 PM, 4th February 2016
About 3 years ago

Actually having read the clause again as it says

Or the Sum of the Yearly Rent payable immediately before the relevant review date and £250 whatever is greater.

Therefore it does affectively double every 10 years.

Fraser Maldoom

23:58 PM, 11th December 2016
About 2 years ago

Reply to the comment left by "sash Dublish" at "04/02/2016 - 22:48":

As you appear uncertain as to the basis of review you should take profesional advice on the likely cost of serving a S42 notice to extend the lease now... ie to reduce your future ground rent to a peppercorn... It might well prove worthwhile to do so.... Sorted!

Dami Ade

15:21 PM, 7th April 2017
About 2 years ago

Solicitors have just informed me the maisonette I'm purchasing has it's ground rent doubling every 25yrs. It's currently £250 with 122yr remaining on the lease.

If I were to extend it statutorily, about how much will it cost and will think it was worth doing?


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