Questions on the lease extension and ground rent increase

by Readers Question

9:44 AM, 23rd November 2014
About 4 years ago

Questions on the lease extension and ground rent increase

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Questions on the lease extension and ground rent increase

First post here but I’ve been reading for a while and this is a great resource. Questions on the lease extension and ground rent increase

I’m nearing the end of my first BTL purchase of a flat but there are a few things to be finalised with the solicitor…. We put an offer in on the flat knowing that the lease was being extended to 125 years and knowing that the ground rent was £25 per year.

The purchase has been dragging on a little time now, so I made contact with the solicitor and she informed me that she’d had the lease extension info through. The new lease is indeed 125 years, but the ground rent has increased from £25 to £250 a year and rising after every 10 years according to the following formula – £250 x latest RPI / initial purchase date RPI.

I’ve emailed the solicitor stating that this isn’t the deal I signed up for and I’m awaiting a response.

Is this a matter to take up with the seller/estate agents or the solicitor??

Any advice and what are my options?

Thanks

Darren



Comments

Mark Alexander

9:52 AM, 23rd November 2014
About 4 years ago

Hi Darren

It seems that you may have been duped into spending money to progress this purchase on the back of false advertising, especially if the terms of the lease were in the estate agents selling details. That would be misrepresentation so I suggest that you ask your solicitor for advice on that point.

You could, of course, pull out of the transaction and if you do that you may be in a position to recover any costs you have incurred.

If you go ahead with the purchase it is far less likely that you will be able to sue for damages because the law says that you must seek to mitigate your losses. Proceeding with the transaction, with the knowledge you have now, could not possibly be seen to be an attempt to mitigate your losses.

You have good reason to be very angry.
.

Colin Dartnell

14:14 PM, 23rd November 2014
About 4 years ago

Chances are, as its a flat the seller is probably not the freeholder, and was no wiser than you about the increase in the ground rent, but the estate agent should have been sensible enough to know it wouldn't stay at the old £25 rate. So if it was advertised like it then the Estate Agent is to blame.

I would suggest going back and asking for a reduced price to compensate maybe to cover the first 20 -30 years of increases, as I doubt the freeholder will budge on the new levels of ground rent, they have no reason to do so.

Darran Lebas

14:52 PM, 23rd November 2014
About 4 years ago

Thanks for your input Mark and Colin.

You're correct; the seller isn't the freeholder so I suspect this in none of their doing, although I have read that you can negotiate a cheaper lease extension if you settle for a higher ground rent. Obviously I'll never know if this was the case or not??

I'm a little annoyed to say the least as this does have an impact on my investment. Like you say, I suspect the naivety was with the estate agents.

I'm not that savvy with the RPI, can anybody give me a really rough idea what those increases might equate to after year 10?

Colin Dartnell

1:29 AM, 24th November 2014
About 4 years ago

I think this could be one for Mark and Neil, but if RPI is at say 4% this year and say at 5% in year ten then

250x 5/4 = 312.50 so not a major increase, and unless I have got it wrong if RPI was less in year ten than it is now it could actually go down with that formula.

Don't be bullied by the agents or vendors, it is not your fault they got it wrong. They probably know it's your first venture and you are eager to go ahead and will try to push you into agreeing without any compensation, but unless they agree a reduction of some kind tell them you will be taking advice on how to proceed.

Ramus Wood

12:14 PM, 24th November 2014
About 4 years ago

Reply to the comment left by "Colin Dartnell" at "24/11/2014 - 01:29":

No. the 3% or 4% or whatever figure is generally quoted in the press is not the RPI (or CPI) - it is the percentage INCREASE in RPI. SO, taking an example:
* between 2003 and 2013, the RPI increase % has been between 0.5% and 4.1%. BUT
* in 2003 RPI was 179 (increase was 2.5%) and in 2013 it was 236 (increase 2.0%)

So taking those years and using your calculation would suggest the new ground rent would be: £250 * 2.0/2.5 = £200 p.a.

BUT actually it should be: £250 * 236/179 = £329
(that's using the 2003-2013 figures, obviously it will be different for 2013-2023, etc)

Who is driving the extension of the lease?

Darran Lebas

16:31 PM, 24th November 2014
About 4 years ago

Thanks all that have replied so far.

Those figures don't actually look that bad, but all this will have a knock on effect on resale in perhaps 25 years' time.... Presumably year 21 (a long time away I know) would be, £342 * 236/179 = £450, (using older RPI as an example) so getting more and more every 10 years.....

I'm annoyed to say the least and as you say, I'm sure the estate agent probably knew this already.....

So where do I go now, back to the seller with a lower offer?

Adrian Jones

16:43 PM, 24th November 2014
About 4 years ago

My son has just gone through a similar problem on a lease extension on a flat he owns in London.

The ground rent increased significantly on a percentage basis but when looking at the big picture he/we decided to go ahead.

I don't know how much you are paying for the flat nor the period left on the lease nor cost of the lease extension but be aware extensions do add value to the property and the cost of the extension and legal fees can be high eg it's cost my son in the region of £25k.

Michael Barnes

23:48 PM, 24th November 2014
About 4 years ago

'Raising based on initial purchase date RPI' would worry me. unless it is "to" and not "by".

Colin Dartnell

19:07 PM, 25th November 2014
About 4 years ago

Reply to the comment left by "WAD " at "24/11/2014 - 16:31":

As Mark said originally you were mislead if that is how it was sold to you.

In the first ten years you will pay £2,500 ground rent instead of £250, so you should be up for compensation, i.e. a drop in price, to cover what is a substantial increase.

Darran Lebas

21:21 PM, 25th November 2014
About 4 years ago

Reply to the comment left by "Colin Dartnell" at "25/11/2014 - 19:07":

Yes, I have been. My solicitor is going to contact the sellers to try and negotiate a cheaper deal with the ground rent, but I'm not holding my breath......

If not, it's back to the estate agents to battle it out.... Again, I don't like my chances; the problem is I have money invested now with solicitor fee's and property searches.....

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