Ground Rent makes property an AST?

Ground Rent makes property an AST?

15:55 PM, 6th April 2021, About 3 years ago 13

Text Size

I am selling a property with a lease of over 100 years Ground Rent of £175 pa with 10-year reviews related to inflation.

My buyer has pointed that at some time in the future the GR will exceed £250 and the property will technically become an AST with rights of repossession by the freeholder if the GR is not paid.

Having looked into this it appears to be an unexpected outcome from the 1998 Housing Act. There does not seem to be anything I can do to change the situation, but my solicitor has suggested offering the buyer indemnity insurance which is what I will probably opt for.

Has anyone else come across it because as far as I can see it could affect thousands of properties eventually?

Many thanks


Share This Article



8:36 AM, 7th April 2021, About 3 years ago

Welcome to leasehold

Dennis Forrest

8:44 AM, 7th April 2021, About 3 years ago

IMO this is just a theoretical problem with relatively low value ground rents. I know of no cases where properties have been repossessed by the freeholder because low value ground rents have not been paid. (in the case of a mortgaged property the lender would step in and pay the arrears). In any case, bear in mind that by the time the ground rent reaches £250 p.a. leasehold reforms will have removed this anomaly of the 1998 Housing Act.

Dylan Morris

9:55 AM, 7th April 2021, About 3 years ago

Forfeiture of the lease has to be granted by the Court so there will be a hearing with the relevant circumstances taken into account.

Mike Newman

10:26 AM, 7th April 2021, About 3 years ago

Reply to the comment left by at 07/04/2021 - 08:44
I agree that there is a small probability of this happening and if GR is always paid in full, on time then there should be no risk of it happening. But I suspect the buyers query is being driven by whoever is providing his mortgage and we know how risk averse they can be, look what's happened with wall cladding!

Dennis Forrest

11:36 AM, 7th April 2021, About 3 years ago

Reply to the comment left by Mike Newman at 07/04/2021 - 10:26
I doubt it is driven by the mortgage provider as they would always step in and clear any arrears rather than forfeit the property. Rather I think it is driven by an overzealous buyer who is perhaps buying leasehold for the first time, done lots of research about the problems of buying leasehold and has found and latched on to this quirk in the legislation that under very extreme and very unlikely circumstances you could forfeit your property because you are in arrears in your ground rent, even though it's just a few hundred pounds. Reassure the buyer that this is an extremely unlikely scenario rather than waste money on an indemnity policy.

terry sullivan

14:52 PM, 7th April 2021, About 3 years ago

surely it would ba AT not AST?


16:06 PM, 7th April 2021, About 3 years ago

Reply to the comment left by at 07/04/2021 - 11:36
Forfeiture would only be granted if the GR remains unpaid for 3 years or more, and that won't happen. But simply do the sums for your buyer to put their mind at rest.

£175 increased in 10 years by, say, 4% to be pessimistic = £7 = GR £182. Another 10 years GR = £189.78....

The property becomes an effective AST when the GR exceeds £250 outside London/£1000 in London. The buyer will have a good few decades before needing to consider this, and as others have pointed out, leasehold will be reformed. Maybe not this year, but soon.

Ian Narbeth

16:30 PM, 7th April 2021, About 3 years ago

Reply to the comment left by at 07/04/2021 - 11:36
No, this IS a problem for mortgagees. Because the lease is treated as an AST the mortgagee might not receive notice of the landlord gaining possession for non-payment, e.g under s8. The risk is theoretical but some lenders will not lend. Solutions are (a) negotiate a deed of variation with the landlord (b) to seek a lease extension and (c) to take out an indemnity policy.

For Mike option (c) will be the easiest if the buyer agrees. Failing that try option (a). If the landlord won't play ball threaten him with option (b).

Mike Newman

17:32 PM, 7th April 2021, About 3 years ago

Reply to the comment left by NewYorkie at 07/04/2021 - 16:06
Perhaps I did not explain properly. The GR is revised by inflation every 10 years. So if inflation is about 3% per annum compounded then the increase is over 30%. So my current £175 is likely to become something like £217 which means that the next increase after a further 10 years would certainly exceed £250.


11:37 AM, 12th April 2021, About 3 years ago

Your Buyer is correct and your solicitor's solution to the problem is adequate.
I would Highlight strongly (as other above have) this is a theoretical argument. There are no cases (to my knowledge) of flats being repossessed in this manner. The courts are extremely biased towards the leaseholder when section 146 procedures commence and should it ever be tested in the courts I am quite certain they will find the practice not in the spirit of the legislation.

However major changes are afoot and the leaseholders position will likely be much more advantageous than before -
(some light reading should you suffer from insomnia)

1 2

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now