Ground Rent makes property an AST?

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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.

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

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!

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.

surely it would ba AT not AST?

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.

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).

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.

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 – https://commonslibrary.parliament.uk/leasehold-reform-in-england-and-wales/
(some light reading should you suffer from insomnia)