Has my ground rent review been calculated correctly?

by Readers Question

9:50 AM, 12th August 2020
About 2 months ago

Has my ground rent review been calculated correctly?

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Has my ground rent review been calculated correctly?

I am looking for some advice on whether ground rent review calculations have been carried out correctly. I have a lease for 125 years from 1 January 2006, within the particulars it states:

“the Commencement Date” 1st January 2006.
“the Rent” £200 per annum subject to review in accordance with clause 9.
“the Base Index” means the RP Index for the last published index figure immediately prior to the Commencement Date.
“the Review Date” shall mean each successive period of five years from the Commencement Date.

Clause 9 states on each Review Date the Rent shall be adjusted by multiplying it by the RP Index last published immediately before each Review Date diving the result by the Base Index and then rounding the figure up to the nearest five pounds PROVIDED ALWAYS that the adjusted Rent shall not be less than the Rent initially defined or any increased amount following a rent review BUT so that such reviewed rent shall never equal or exceed such a sum as would in appropriate circumstances create an inhibition on the premium capable of being charged on an assignment of the Demised Premises in the same manner as set out in Section 27 and Schedule 18 Part II of the Rent Act 1977 as amended by Section 78 of the Housing Act 1980 or any amending or similar legislation in which case the Rent shall be £1.00 less than the sum which would otherwise be charged.

So the Base Index would be December 2005 which was 194.1 and for the first rent review in January 2011 the calculations were £200 x December 2010 RP Index 228.4 / December 2005 RP Index 194.1 = £235.34 rounded to nearest £5 is £240. This is the figure the ground rent increased to and as far as I can see is correct.

For the second review in January 2016 the calculations should have been £200 x December 2015 RP Index 260.6 / December 2005 RP Index 194.1 = £268.53 rounded to nearest £5 is £270. However, the rent was actually increased to £325. Having worked out how they got to this figure it became apparent that they had used the £240 figure thus carrying out a rent review for the first 5 years once again.

I did query this but was told the rent changes to the new figure each review and that if I didn’t pay it immediately I would incur a penalty of £120 on top.

I am concerned that if this carries on at the next review in January next year the first five years will have been reviewed three times, the second five years twice and so on.

I would appreciate if someone could confirm that my assumptions and calculations are correct and that “the Rent” should also stay at £200 for the calculations?

Many thanks
Simon


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Comments

Ian Narbeth

11:19 AM, 12th August 2020
About 2 months ago

Hi Simon
I have some experience of this. It appears that you or whoever reviewed the lease missed a sneaky trap that means that all of the RPI increase since December 2005 is applied at each review to the new rounded up rent. Your ground rent will go up again in January 2021 to at least £495 and will go on increasing with doubled up RPI until the cap is reached. I suspect the draftsman knew exactly what he or she was doing and relied on tenants and their solicitors not reading it closely enough.

Although this is grossly unfair it appears (subject to seeing all the documents) that this is clearly what the lease provides. Nasty.

You may have a claim against your solicitor for not pointing this out when you took the lease. If your lease is one of many in a block you may be able to join with other tenants to try to have it rectified. Did you acquire the lease in 2006 or later?

I have a recollection there is a reported case on exactly this type of clause but would have to research it. Contact me and I'll see if I can help.

Ian R

14:02 PM, 12th August 2020
About 2 months ago

Had a quick look and revised ground rent should be £270 as per the terms of your lease. It is calculated on the uplift since the last revision.

Your landlord or their agent has calculated this incorrectly. However, suggest you pay the sum demanded without delay and ask them to confirm their calculations for their demand. Once you have this, then issue a LBA for the return of the difference. If it’s not forthcoming issue a country court claim for the sum to be returned.

They will be forced to respond to the Court if they don’t roll over. Also check your lease for any reference to disputes regarding ground rent calcs as some leases do have them.

PS work in the leasehold sector.

Ian Narbeth

14:33 PM, 12th August 2020
About 2 months ago

Reply to the comment left by Ian R at 12/08/2020 - 14:02Ian R, your answer directly contradicts mine but you do not acknowledge or refer to it. If I am wrong I am happy to be corrected. I have worked as a property solicitor for 35 years.
Simon said that “the Base Index” means the RP Index for the last published index figure immediately prior to the Commencement Date. This means it is fixed and is the figure for December 2005, namely 194.1.
The "Rent" is NOT fixed at £200 but is the increasing figure. At each review the Rent (as previously reviewed) is multiplied by the RP Index last published immediately before the Review Date and dividing the result by 194.1. This leads to the ratcheted rent.

Usual caveat that I am going on what Simon has disclosed and would need to see documents to give a definitive opinion.

BernieW

14:33 PM, 12th August 2020
About 2 months ago

There is, of course, an easy way out of this problem - issue a section 42 notice to claim a +90 year extension to the lease term ... and the ground rent reviewed automatically to a peppercorn; i.e. zero.
Happy to advise on the specific lease extension premium etc etc if you email the details to me.
Bernie Wales, FIoD, FIRPM

John

15:23 PM, 20th August 2020
About 2 months ago

Hi Bernie, would like to contact you about this . Could you let me have your email address? Mine is finn.pjohn1564@gmail. Not the virgin one. That has ceased. Though I can't seem to edit it out of my profile. Anyone know how?
Cheers
John

BernieW

11:15 AM, 21st August 2020
About 2 months ago

Reply to the comment left by John at 20/08/2020 - 15:23
I have emailed you as requested.


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