Ground rent school boy error?

by Readers Question

4 weeks ago

Ground rent school boy error?

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Ground rent school boy error?

Hi All, Ive made a bit of a school boy error here.

I have a small portfolio, and my last purchase around 4 years ago was a flat in South London had the following clause for the ground rent: Ground Rent £250 Reviewed every 10 years by a factor of 2 or by RPI whichever the greater. Term 99 years

At the time my solicitor did clearly point this out, however I decided due to the price and location I would still make the purchase. I must admit I look back now and do have some regret and am wondering what I should do as its beginning to concern me.

Please don’t answer with “well you should not have purchased” as I’m already down the line with this”; any thoughts/advice from experienced landlords would be greatly appreciated.

Thank you

Marcus

Comments

Neil Patterson

4 weeks ago

The big question is how is your investment performing overall once you take into account capital appreciation, rental inflation, voids and costs compared to the ground rent issue?

Although I do understand the concern over future demand and capital appreciation if the ground rents becomes significantly out of balance.

Gary Nock

4 weeks ago

To get rid of ground rent ( and turn it into a "peppercorn rent") you can extend the lease on the statutory route ( not voluntary) for 90 years above the remaining lease term. But it will be expensive. Other than that you are stuck with it I am afraid.

BP Surrey

4 weeks ago

Having owned the flat for more than two years, you now have the right to extend the lease by a further 90 years at a zero ground rent from the time the lease is extended. To calculate the cost of extending the lease, you need to know the value of the flat after the lease has been extended, the date when the existing lease expires and the current ground rent. Using the assumption your flat will be worth 250K, there is around 95 years remaining on the current lease and the current ground rent is £250, the Leasehold Advisory Centres online calculator suggests the cost of extending the lease by 90 years and eradicating any further ground rent payments to be between 5 & 7K. You can find further information online as above and use the calculator keying in the your view on the value of the flat. If you feel its a good bet, your solicitor will get it done for you. Good luck.

Marcus

4 weeks ago

Reply to the comment left by BP Surrey at 30/03/2018 - 08:56
Hi BP, Thank you so much for taking the time and effort to respond and outline a possible way forward for me. If i can get sorted what you have outlined i will be super relieved and very happy as i want to keep the flat.
Any suggestions in terms of how to begin the process? i have a solicitor i used to purchase the flat so im thinking they could potentially organise or should i contact a specialist in lease extensions - any recommendations?
Thanks again - i really do appreciate your response, ive been quite worried to say the least...!

Marcus

4 weeks ago

Reply to the comment left by Gary Nock at 30/03/2018 - 08:52
Thanks Gary - i will be taking this route forward.

Marcus

4 weeks ago

Reply to the comment left by Neil Patterson at 29/03/2018 - 13:32
Hi Neil,
Yes the investment is performing well; the service charge is pricey and the insurance is a joke; however its gained alot in capital appreciation and the tenant is generally on time with payments which gives me a little positive cash flow and i do feel give it time the location is a sound investment. I do want to keep the flat, but i cant let the lease and ground rent give me sleepless nights, i need to nip it in the bud now...sounds like from other comments this is possible at a price.

BP Surrey

4 weeks ago

Hi Marcus, I should use the same solicitor who acted for you in purchasing the property in the first instance. He or she might be able to negotiate a deal although you might need to employ the services of a surveyor to negotiate a deal for you if the freeholder is difficult. The freeholder will no doubt use a solicitor and perhaps a surveyor too. You will be responsible for paying for the services of the freeholders solicitor and surveyor along with your own legal costs. There is a loose formula in use to calculate the cost of extending the lease although the freeholder might well try to get you to pay more than the going rate. It might be worth paying a bit more for the lease extension to avoid surveyors cost. You should allow 2 TO 4k for costs. Brian

David Atkins

4 weeks ago

How many other flats are there in the same block? If its a small number there may be a way to get a cohort to extend the lease together and cut down legal fees,

BP Surrey

4 weeks ago

Good point made by David, you could also consider buying the freehold if you can get enough leaseholders to agree and you are willing to manage the block yourselves. Good savings can then usually be made on service charges.

Ian Cognito

4 weeks ago

Hi Marcus.

You want to buy the freehold, but you are being given advice on the cost of extending your lease. I have seen the "rule of thumb" stating that the cost of buying the freehold will be similar to the cost of extending the lease by 90 years, however, this seems illogically simplistic.
Over the term of the lease, a ground rent doubling every 10 years will generate much more cash for the freeholder than one doubling every 25 years, or one that increases only by RPI (which, of course, is your main concern).
Therefore, I would expect the costs of buying the freehold to be very different.
Maybe there is a better method of calculation that takes into account ground rent increases?

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