Leaseholder wants to change Ground Rent?

by Readers Question

11:46 AM, 13th August 2018
About 3 months ago

Leaseholder wants to change Ground Rent?

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Leaseholder wants to change Ground Rent?

I am the Freehoder of block of Flats (12) which I acquired in 2014. The orignal Lease is 125 years from 2009

The intial (and current) Ground Rent I collect is £150 per Annum. The lease provision is Ground Rent doubles every 25 years

One of the Leaseholders is selling and have asked to amend the terms wherby I confirm Ground Rent increases will be capped at £1000.

My questions are
1–Am I obliged or can I refuse outright and if I did any Legal action ?
2–Who is responsible for Legal Fees in particular my side
3–If I agreed is there a value /price I as Freeholder should ask ?
4–If I do for this one should I automatically do same for the others in the Block ?
5–Any other comments from my position as Freeholder and again in light of recent negative press on this

Thanks

Ash



Comments

Neil Patterson

11:49 AM, 13th August 2018
About 3 months ago

Hi Ash,

This is not an area I have any expertise in so someone else may be able to help, but I always suggest starting with the Leasehold Advisory Service >> https://www.lease-advice.org/

RobertHDean

9:06 AM, 14th August 2018
About 3 months ago

I don't think that you have any obligations in this regard. Your leaseholder signed his lease (contract) with the existing terms in place. I cannot imagine a situation where they would be in favour of you proposing to change the terms to your advantage. Just say no?

Derek t

9:37 AM, 14th August 2018
About 3 months ago

Leave it alone they agreed to it when they bought it
Changing it will devalue the freehold value so you will lose out long term

Graham Bowcock

9:42 AM, 14th August 2018
About 3 months ago

Ash
I cannot see that you have any obligation to vary an existing lease so you would be within your rights to say no (subject to whatever provisions are actually in the lease).

I assume that the leaseholder wants to make the change because there is a financial advantage to him in doing so; possibly in light of current media coverage it will make the property easier to sell. If this is the case you could reach some financial agreement about a change which would include the leaseholder meeting all of your expenses, over and above any premium for the change.

A valuer could give you some figures as the matter is essentially mathematical and capable of being calculated. You and the leaseholder would then have to take a view as to whether it was viable to make any changes.

You wouldn't necessarily have to change any other leases, although you should just check for any overlapping provisions before proceeding just to make sure.

Graham

terry sullivan

11:40 AM, 14th August 2018
About 3 months ago

decline++++--if you do it for one the other will want the same and this will devalue the freehold price--your GR is very valuable, both in terms of an outright sale, and in the price you can charge for lease extensions

Annabel Blake

12:41 PM, 14th August 2018
About 3 months ago

Surely the answer here is for them to apply for a statutory lease extension of 90 years, plus reduction of the ground rent to a peppercorn? We have done this recently on a couple of leasehold properties which we own (speaking from the other side of the fence, as it were). But I guess you might not want to point them down this route!! However, speaking also as a freeholder of a property where one of our leaseholders has also negotiated with us to extend the lease, at least we got a decent premium from the transaction to compensate for the loss of ground rent.

Michael Barnes

23:03 PM, 16th August 2018
About 3 months ago

Doubling every 25 years in an annual rate equivalent of 2.8%, which is not unreasonable.

If it were to be capped at £1000, inflation would make it worth very little over the long term.

Decline the offer.

Nick Pope

9:46 AM, 18th August 2018
About 3 months ago

I suspect that the leaseholder has been told about some ground rents which, for example, double every 10 years. This has a snowball effect and would exceed inflation at current rates (the increase equates to approx. 7.5% per annum). Such increases have caused concern with the major mortgage lenders. For instance Nationwide state:
Maximum starting ground rent 0.1% of property value
Any ground rent reviews must be reasonable, e.g. linked to RPI. Ground rents which double every 10 or 15 years are not acceptable.
Event fees (for consent to alter or extend the property) must be reasonable.
This applies to new properties but valuers are expected to apply the same guidance to second-hand flats and houses as well. Following these rules I have recently had to decline a flat where the ground rent doubles every 10 years.
In your case you have no obligation other than to grant a lease extension if the leaseholder legally requests it and the figures for this can be accurately calculated by a surveyor in accordance with specific rules set out in the legislation.
I would certainly not agree to a cap on ground rent as this would reduce the value of the freehold.
As mentioned above you could offer to reduce the ground rent permanently to a peppercorn but there would be a value payable by the leaseholder, also easily calculated.
So far as legal costs are concerned it is the leaseholder requesting an alteration so it should be at his/her cost.
You would not then be required by legislation to offer the same deal to other leaseholders and can negotiate with each separately.
Of course you will appreciate that the occupiers can force you to sell by applying for Collective Enfranchisement see http://www.leaseholdadvicecentre.co.uk/Collective%20Enfranchisement.htm for more information. Once again the cost to them would be based on similar calculations to those above and they would be liable for all your legal costs.
Hope this helps.


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