Ground Rent makes property an AST?

Ground Rent makes property an AST?

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

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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

Mike


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Comments

Jontyv

22:41 PM, 23rd April 2021, About 3 years ago

My stepson lost a sale of his property last year when the prospective buyer's mortgage company said the ground rent was onerous and he should get the freeholder to vary the lease - which they refused. The ground rent was £72 and after 50 years rose to £125, then doubling to £250 after a further 50 years and again to £500 after a further 50 years where it remained fixed for the remainder of the 999 year term. We were told it was deemed to be an "Estate Fee" if at any time during the term it was ever due to exceed £250. Luckily he has just sold to a cash buyer!

Dennis Forrest

9:56 AM, 24th April 2021, About 3 years ago

Reply to the comment left by Jontyv at 23/04/2021 - 22:41
Difficult to understand this. A statutory 90 year lease extension at a peppercorn (zero) ground rent would have cost peanuts and made the new extended lease to be for 1089 years. No freeholder can deny a statutory lease extension provided he/she is served the proper notice and the premium offered for the lease extension was realistic. £1500 would have ben plenty to offer which would be about 21 years ground rent at current annual rate of £72. If the freeholder just ignores the notice then after 2 months you get the lease extension by default at the premium you have offered. I am very surprised that this never occurred to the mortgage company. In any case £500 in 100+ years time might not even be enough to buy a round of drinks!

Ian Narbeth

9:44 AM, 26th April 2021, About 3 years ago

Reply to the comment left by Jontyv at 23/04/2021 - 22:41
"The ground rent was £72 and after 50 years rose to £125, then doubling to £250 after a further 50 years and again to £500."
Most mortgage companies will accept this. Inflation in this country has in the past involved doubling about every 20-25 years. The RPI has risen by 99.2% between April 1995 and March 2021. It rose by 101% between April 1985 and March 2005. So doubling every 50 years and stopping at £500 is not onerous.

The CML Handbook gives guidance as to what individual lenders will accept: https://lendershandbook.ukfinance.org.uk/lenders-handbook/

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