Ground Rent increases – Are they a big risk?

Ground Rent increases – Are they a big risk?

7:38 AM, 10th April 2014, About 8 years ago 26

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Hi

We are in the process of buying a brand new property with Redrow. Looking into the conditions of the lease it has been specified that the Ground Rent will start at £400 per year increasing to double at year 10 and consecutively doubling every 10 years for 5 consecutive times. Ground Rent increases

We are a bit concern as it seems a bit worrying. Looking around to say than in 10 years time the Ground Rent is going to be £800 per year and then £1600 in 20th anniversary till become £12,800 at 50th anniversary doesn’t seem to be a good deal.

Could this clause put people off of buying the flat in the future? Are these amount extortionist or are we been over caution worried and this instead has became the normal practice and it is something we are going to find everywhere else.

Just to note the lease here is for 999 years.

Any advice or comment would be appreciated as we need to exchange contracts today or tomorrow.

Thanks

Tiko Taylor



Comments

Ian Ringrose

12:01 PM, 10th April 2014, About 8 years ago

Do mortgage companies take into account ground rent when deciding if they will lend on a flat, as it may make it a lot harder for them to sell the flat?

Industry Observer

12:09 PM, 10th April 2014, About 8 years ago

Good point Ian but no, because they will not see the head lease.

Unless the valuer/surveyor is made or becomes aware of the provision they will not know.

John Daley

15:50 PM, 10th April 2014, About 8 years ago

Hi Tiko,

Let's say you live in the flat for 30 years and then want to sell. At this point the ground rent will be 3x the initial. Will that reduce the value of your lease, I think it probably will.

Ground rents are nominal sums just to indicate an eventual hope of reuniting the freehold and leasehold interests in the distant future. They are not usually worth anything till the last few years. In modern times most will have been bought out by the leaseholders before they mature.

Redrow are just trying to squeeze a few more quid out of the deal. Their intention is to make the freehold a little bit more valuable when they sell it on. There is a market for ground rents.

I'd be inclined to walk on by unless you really want the flat.

Michael Barnes

22:36 PM, 10th April 2014, About 8 years ago

Reply to the comment left by "John Daley" at "10/04/2014 - 15:50":

Not 3 times: 2 to the power 3 times, i.e. 8 times (double at ten; double again at 20 = 4 times; double again at 30 = 8 times).

Michael Barnes

23:00 PM, 10th April 2014, About 8 years ago

Reply to the comment left by "Industry Observer " at "10/04/2014 - 09:36":

I have scanned 'Leasehold Reform, Housing and Urban Development Act 1993' and see nothing in there about minimum time before acquiring freehold.

Perhaps the developers do not want the freehold, and the ground rent increase clause is to spur lease holders into acquiring the free hold?

Ian Ringrose

23:05 PM, 10th April 2014, About 8 years ago

Buying the freehold will not be cheap, as it will be valued based on the income it generates.

Mike W

12:57 PM, 11th April 2014, About 8 years ago

Tiko,

1. Ask the leasehold advisory service about legality & what can or cannot be done about it. Govt run and free. They have given good advice to me in past.
2. You don't say size of property but £400 pa sounds high to me.
3. The increase is exorbitant. It is demonstrating real terms growth on the rent.
4. Does your solicitor/valuer think it is reasonable?
5. If you have doubts, so will future buyers.
6. Any lender I have dealt with required info on ground rent and lease.

I would walk away.

Romain Garcin

14:34 PM, 11th April 2014, About 8 years ago

For perspective, doubling every 10 years is about 7.2% a year... steep.

Chris Amis

22:53 PM, 11th April 2014, About 8 years ago

If the ground rent is iffy what else might be lurking, is there a major management company, provision for frequent repainting, an outlandish fire alarm system, charges to sublet or perhaps an entry phone system on some pre-arranged long term contract.

Shakeel Ahmad

9:24 AM, 12th April 2014, About 8 years ago

And if you wish to get out and sell your flat the Managing agent will charge you £350 plus VAT to provide the pack. This is just printed off and no major time./labour is required.

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