Keep or sell leasehold with ground rent increasing formula?

by Readers Question

9:19 AM, 5th April 2021
About A week ago

Keep or sell leasehold with ground rent increasing formula?

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Keep or sell leasehold with ground rent increasing formula?

I have a leasehold of a flat with Ground Rent of £250 that increases by either £250 or the rate of inflation every 10 years. 10 years are up next year, so Ground Rent will be a minimum of £500. Then the following 10 years will go up a minimum of £250 and so on.

I wasn’t planning to sell the flat as the Net Yield is 9% and the flat easily gets rented. Basically, it will be our Pension.

At the back of my mind is if my kids or their grandkids want to sell the property it will be impossible to do so due to the increasing Ground Rent clause in the lease.

I have tried to get the other three leaseholders to buy the freehold with me but not I am getting anywhere. I think it’s cheaper to buy now than when the Ground Rent increases to £500 per year

Any advice or inputs would be much appreciated.

Jim

Comments

Dylan Morris

12:04 PM, 5th April 2021
About A week ago

Sounds like your purchase price included the expensive ground rent reviews, hence why the yield is attractive. Do you buy for cash rather than a mortgage ?

John Frith

14:15 PM, 5th April 2021
About A week ago

As has been said, the more time passes, the less onerous the increases will be. And at the moment £500 pa is less than £42 pm - it doesn't take much on the plus side (eg a good yield) to outweigh that.

Jim Littlehampton

10:23 AM, 7th April 2021
About A week ago

Reply to the comment left by Dylan Morris at 05/04/2021 - 12:04
I got a mortgage. Thanks for the responses. I think it definitely worth keeping

I may try again to buy the freehold but will this be much more expensive next year when ground rent will increase from £250 to around £500. I don't think the lease reforms will help us.

Jim Littlehampton

10:29 AM, 7th April 2021
About A week ago

Reply to the comment left by Ron H-W at 05/04/2021 - 12:02
Thank you for the detailed calculation. Yes its not doubling Revised Rent = £250 * Latest Index Figure/Initial Index Figure OR the sum of the yearly rent payable immediately before the relevant review and £250 whichever is greater

It based on inflation increases with the minimum increase being £250

Dylan Morris

10:34 AM, 7th April 2021
About A week ago

Reply to the comment left by Jim Littlehampton at 07/04/2021 - 10:23
Well that’s good news Jim that the property is mortgageable. I somehow doubt any leasehold reforms are going to apply to existing leases (ie. retrospectively).
I have a rental flat where the lease increases along with inflation linked to RPI with reviews every 15 years. Went up this year from £170 to £260 not bad really, but inflation has been low over such time. We could be in for a period of high inflation in the future, which could work for you in a way. Your ground rent increases of £250 every 10 years may look reasonable if the increase had been around this much with inflation anyway.
Good luck with the flat and your excellent 9% yield.

Jim Littlehampton

15:24 PM, 8th April 2021
About A week ago

Reply to the comment left by Dylan Morris at 07/04/2021 - 10:34
Thanks Dylan for the reply. If inflation is high then will lose out as its either minimum of £250 or if inflation increases are higher then will be more than £250 increase. I am no worried about the amount. Though in 50 years Ground Rent will be at least £1250 per year. I would prefer to buy the freehold but that could mean more hassle too.

Andy

7:46 AM, 10th April 2021
About 5 days ago

For me £250 is more expense but just think of the options

Lose a load on agents fees prob 10 years of increase
Lose income for you and family in future

Increase can be offset by a small rent increase of £25 a month which would reduce this and you may end up with same net income as previous years just not an increase

I’d keep as unless you need capital money any profit and 8/9% is a good return

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