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

Tiko Taylor

9:40 AM, 12th April 2014, About 8 years ago

Hi everyone

Thanks a lot for your responses. Very helpful.

The flat is in kingston, surrey where the average house prices are quite high compared to the rest of the uk. Also the flat is next to the river so commands a premium.

I called lease advisory service to discuss this and they said there is nothing illegal about this clause although it is very unfair. Their opinion was that this development is aimed at people who don't care about a few hundred here and there! Obviously I am NOT one of these people!

Spoke to the solicitor but he didn't give any advice. Just said take it or leave it!

Spoke to the estate agent and he said the reason redrow do this is because most likely they will want to sell the freehold in a few years and they need to make the deal atttracive. The residents have the first right of refusal so there is a chance we can buy the freehold and get rid of the ground rent clause. He also said that over 100 people have exchange in that development without any concern for this clause!

The deciding factor for me is going to be the investment side. Even with this clause if the property can be sold for 20% more a few years down the line then maybe it's worth it!? Who knows! This is so confusing!

Shakeel Ahmad

10:15 AM, 12th April 2014, About 8 years ago

Also the flat is next to the river so commands a premium.

I AM AWARE OF THE BLOCK. THE SERVICE CHARGES WILL BE VERY HIGH IRRESPECTIVE OF WHAT THE BROCHURE SAYS.

I called lease advisory service to discuss this and they said there is nothing illegal about this clause although it is very unfair.

THEY ARE RIGHT AND IN MOST CONTRACT ONE CAN CHALLENGE AN UNFAIR CLAUSE AND I AM CERTAIN THIS CASE ONE CAN.

Their opinion was that this development is aimed at people who don’t care about a few hundred here and there!

THEY ARE RIGHT THIS S BECAUSE OF PEOPLE WHO DO NOT CARE OR DO NOT MIND BEING RIPPED OFF IS WHY SUCH CLAUSES THAT THEY CLAUSES GET ADDED ON WITH IMPUNITY. ( LET US NOT FORGET THAT PEOPLE BUY HOMES FOR PEACEFUL OCCUPATION AND NOT BE RIPPED OFF AT EVERY TURN )

Obviously I am NOT one of these people!

GLAD/MAYBE NOT, YOU ARE NOT ONE OF THOSE PEOPLE. EVEN IF YOU WERE ONE OF THOSE PEOPLE IT DOES NOT ALLOW YOU OR ANY ONE ELSE TO BE RIPPED OFF.

Spoke to the solicitor but he didn’t give any advice.

TYPICAL SOLICITOR, SITTING ON THE FENCE.

Just said take it or leave it!

IN THIS CASE I AGREE WITH THE SOLICITOR.

Spoke to the estate agent and he said the reason redrow do this is because most likely they will want to sell the freehold in a few years and they need to make the deal atttracive.

CORRECT, AS SOON AS THE LAST FLAT IS SOLD THEY WILL BE IN THE MARKET & YOU WILL HAVE SOME REAL SHARKS BUYING THE FREEHOLD.

The residents have the first right of refusal so there is a chance we can buy the
IN THEORY AND BY LAW NOT OFFERING IS A CRIMINAL OFFENCE. I HAVE NEVER HEARD OF ANY ONE PROSECUTED FOR IT.

I HAVE NEVER BEEN OFFERED OR HEARD ANY ONE WHO IS OFFERED. THE PRACTICAL SITUATION IS THAT THE LEASEHOLDERS WILL NOT BE ORGANISED ENOUGH TO BUY IT, MOST LEASEHOLDERS WILL NOT UNDERSTAND THE BENEFIT OF BUYING OR HAVE THE MONEY TO BUY AS THEY HAVE ALREADY DISHED OUT ENOUGH THEIR LAST PENNY IN BUYING THE PROPERTY & IF THE BUYER IS IN LONDON THE 3% STAMP DUTY.

freehold and get rid of the ground rent clause. He also said that over 100 people have exchange in that development without any concern for this clause!

THEY PAY FOR THEIR IGNORE OR NOT CARING. THEY RELY ON SOLICITORS TO POINT THIS OUT AND MOST CASES THE SOLICITORS DO NOT.

The deciding factor for me is going to be the investment side.

YOU ARE ALREADY PAYING A PREMIUM FOR BUYING A NEW PROPERTY. NO ONE IS GOING TO BE PAYING EXTRA RENT BECAUSE THE PROPERTY IS NEW. THE RENT ARE ESTABLISHED BY THE LOCAL MARKET. YOU WILL THAN HAVE TO PAY LETTING ARRANGEMENT FEE WHENEVER THERE IS A CHANGE OF TENANCY.

YOU ARE BETTER OFF BUYING AN EXISTING PROPERTY ON THE RIVER THAT WOULD BE CHEAPER & GIVE YOU A BETTER YIELD. ALSO KEEP IN MIND THAT ONCE THE FLATS ARE HANDED OF THERE WILL BE GLUT OF RENTAL IN THE BLOCK. AS BUYERS LIKE YOU WILL BE ENTERING THE MARKET AT THE SAME. THUS CREATING AN OVER SUPPLY OF RENTAL PROPERTIES.

Even with this clause if the property can be sold for 20% more a few years down the line then maybe it’s worth it!? Who knows! This is so confusing!

NO ONE KNOWS WHERE THE PRICES WILL BE. IF THEY DIP YOU WILL BE IN NEGATIVE EQUITY DUE TO HIGHER PRICE FOR A NEW BUILD.

PLEASE NOTE THAT I AM NOT SHOUTING AT YOU. BLOCK CAPITAL FOR EASE. PERSONALLY,IF I WAS YOU I WOULD WALK AWAY AND BUYING. AS A TASTER CHECK OUT " PEVEREL, CHARTER QUAY" IN KINGSTON.

GOOD LUCK

Ian Ringrose

12:45 PM, 12th April 2014, About 8 years ago

My wife brought a RedRow flat of plan, they may it very hard for the residents to buy the freehold, as they started the process before most of them had met each other and the time limits did not allow the residents to get themselves organized.

RedRow had no interest in anything apart from “box ticker” once the contracts were completed on people buying the leaseholds.

The freehold was sold to a company that makes its money by over charging for permission to let etc, while running a central London office, so clearly not trying to minimise costs.

Personally I would not touch a new build flat unless the freehold was going to be owned by the management company that each leaseholder has a share in

Mike Sosner

18:39 PM, 18th April 2014, About 8 years ago

It looks like the preceding comments have pointed you the direction to go in, Tiko (away from Redrow!) I just wanted to remind you that anything can be put into a contract that both parties agree. I would have as soon as I saw the contract, crossed out the offending clause, put my signature to a ground rent that is absolutely reasonable to me, and walked away, leaving it with Redrow… As an investor you’re interested in the numbers and they’ve put some ugly ones into your deal. At least you’re leaving open a dialogue with them…
So caveat emptor – let others tread where you fear to. And if 100 people did, the more fool them! Maybe they have their own good reasons – they want to lose money or something?
Yet Ian’s experience suggests a further, salient call for high-level advice about what a subsequent freeholder may or may not be able to do that clearly your solicitor may not be proactive enough to provide?
Mike
P.S. I agree with Shakeel’s advice that you may be BETTER OFF BUYING AN EXISTING PROPERTY ON THE RIVER THAT WOULD BE CHEAPER & GIVE YOU A BETTER YIELD. (I hope he’s not shouting!) Although I personally wouldn’t buy near water in the next 50 years! Maybe Redrow are pricing-in flood defences? It’s never simple, is it!

Surbiton Renter

15:29 PM, 26th May 2014, About 8 years ago

Tiko Taylor

Curious to find out what decision you made in the end. I am also considering a flat with a similar ground rent escalation clause and have not yet come across any information online for anyone that has successfully navigated the clause except those that walk away.

Can you provide an update of if you proceeded or if not?

Mike Sosner

21:32 PM, 3rd October 2016, About 6 years ago

But it will be surveyed as a MARKET ground rent in 25 years' time and not a runaway compound sum...

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