Rip-off 999 year lease ground rent review clause/Role of expert surveyor?

Rip-off 999 year lease ground rent review clause/Role of expert surveyor?

11:13 AM, 28th March 2022, About 2 months ago 16

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I’d be extremely grateful for the benefit of your expertise regarding:
(a) the interpretation/enforceability of what is either a poorly or craftily worded ground rent review clause in a 999-year lease on a flat
(b) the remit of the expert surveyor in dispute resolution (eg can they simply ignore the formula in the lease for the ground rent review and assign a “fair” ground rent?)
(c) possibility/practicality of bringing a section 42 claim under the 1993 act in order to stop the ground rent on a 999-year lease eventually becoming extortionate when only a few decades have expired?
(d) any other available remedies (other than hoping the promised Act that addresses all injustices in Ground Rents in existing leases comes along soon).

The clause in question states “The Rent shall be subject to review on each twenty-first anniversary of the Commencement Date and shall then be the sum of the Rent plus such sum as shall be the difference (in percentage terms) between the Review Value of the Block and the First Value of the Block…..”

What happens when the 2nd review comes up?

From a common-sense logical point of view what ought to happen is that either the original Rent is uprated by the percentage increase in between the First (ie original) value of the block and the 2nd Review (or the Rent resulting from the first review should be uprated by the percentage increase in value between the first and second reviews).

Now, it would be completely unjust, but suppose they take the Rent from the first review and uprate that by the percentage increase between the original value and the 2nd review. And then at the 3rd review use the rent from the 2nd review uprated by the percentage increase between the original value and the 3rd review. Ultimately you end up with something far worse than ground rents doubling every 10 years which has made many properties difficult to mortgage/sell.

There is a reference to the cap formula, but have read elsewhere cannot assume will still apply.

There is the potential for the lessee to dispute the reviewed rent and to come to an agreement with the lessor and failing that an “Expert Surveyor” be appointed to decide (not arbitrate), which presumably would now mean the RICS Dispute Resolution Service.

I wondered whether the “Expert Surveyor” has authority to simply assess what they judge to be a “fair” valuation of the ground rent for the property concerned in prevailing market conditions or are they in any way hamstrung by a potentially unfair formula in the lease and they simply assess the new values to be fed into it?

If they do assess a fair ground rent fairly on prevailing market conditions is there any sign that this has been influenced by the passing of the Leasehold Reform (Ground Rent) Act or for that matter generally keep to under £250 (outside London) which I understand can otherwise cause potential problems with mortgaging/selling.

Is it possible/practical to bring a section 42 claim under the 1993 act in order to stop the ground rent on a 999-year lease eventually becoming extortionate when only a few decades have expired?

If so would the extortionate future ground rent trying to avoid substantially inflate the cost of doing this (as presumably the lessor would argue they should be compensated for this loss of considerable future income)?

Are there any other legal recourses available? (other than hoping the promised Act that addresses all injustices in Ground Rents in existing leases comes along soon).

Many thanks for reading and really appreciate your thoughts.
Tim



Comments

by Hedley

12:21 PM, 28th March 2022, About 2 months ago

You need to read, or get an expert to read the whole of the review clause(s) and any definitions there may be. However, on the information you have provided, I think that on every review the % will always be applied to the original value and the original ground rent.

by Mike in Worthing

12:22 PM, 28th March 2022, About 2 months ago

Why not extend the lease? Marriage value will be zero anyway. The law entitles to you to another 90 years at zero ground rent! Just a thought.

by Darren Peters

12:51 PM, 28th March 2022, About 2 months ago

Reply to the comment left by Mike in Worthing at 28/03/2022 - 12:22
Mike's answer seems ingenious if it works. I just plugged in the numbers in Lease-advice.org. A million pound property with a ground rent of £1,000 per year would cost about £15,000. I assume these numbers are much higher than Tim the OP's scenario. But is a Lease allowed to be longer than 999 years?

by Blodwyn

13:03 PM, 28th March 2022, About 2 months ago

Lease extension seems the way forward.

by Graham Bowcock

13:17 PM, 28th March 2022, About 2 months ago

Wearing the hat of an Expert Surveyor, it would be foolhardy of any expert to disregard lease provisions. The lease is what the parties signed up to and should be upheld. If the lease provisions have become obsolete or unworkable over time then the Expert may review an alternative way of resolving the matter (perhaps applying a mix of experience and custom & practice). Similarly if there is a lack of clarity the Expert may consider arguments from the parties as to what an alternative way may consist of.

Where the parties simply do not like the agreed provisions (presumably because they are oppressive) then the Expert route may not be the one to go down.

Most people signing long leases fail to factor in the lease provisions (especially ground rents) when agreeing the purchase price.

by Tim A

13:45 PM, 28th March 2022, About 2 months ago

Reply to the comment left by Darren Peters at 28/03/2022 - 12:51
Thanks Darren - that is a crucial question - can a lease currently be extended beyond 999 years under existing legislation to escape an extortionate ground rent. I'll check out the LEASE calculator - not sure how it might cope with an effectively exponentially escalating ground rent, but worth a try. If and when the Govt comes good on its promise then in time should be able to buy out ground rent without extending https://www.lawcom.gov.uk/project/leasehold-enfranchisement/ This form Jan '21 I think: "In addition, the Secretary of State signalled the Government’s acceptance of some recommendations made in our later report on the enfranchisement regime by indicating that legislation will be introduced to give residential leaseholders of houses and flats the same right to extend their lease, as often as they wish, at zero ground rent, for 990-years, or, where leaseholders already have a long lease, to buy out the ground rent without any need to extend the lease."

by Tim A

14:03 PM, 28th March 2022, About 2 months ago

Reply to the comment left by Graham Bowcock at 28/03/2022 - 13:17
Thanks Graham - good to get your expert take on this. I'd be really interested to know how you interpret that clause - whether you think (as Hedley has said) on the basis of info supplied that should be interpreted as applying uplift applied to the original rent (Btw where various terms are explained the Rent is defined as £150 (but then on the other hand it is variable))

by Tim A

14:08 PM, 28th March 2022, About 2 months ago

Reply to the comment left by Hedley at 28/03/2022 - 12:21
Thanks Hedley - I'm glad you think so (ie always referring back to original sums for both Rent and Price). I note your caveat about needing full definitions and actually for The Rent it does say £150 (but on the hand The Rent is variable).

by Joe Bloggs

14:12 PM, 28th March 2022, About 2 months ago

I dont see a problem with this clause. seems clear that the original ground rent will go up at same percentage as original valuation at each review. btw is this a barratts/ peverel lease?
is it the total of all the values of all the flats in the block?

by Tim A

14:28 PM, 28th March 2022, About 2 months ago

Reply to the comment left by Joe Bloggs at 28/03/2022 - 14:12
Thanks Joe - that is another vote for common sense interpretation (along with Hedley earlier) and where various terms are defined The Rent is stated as £150 (but on the other hand it is variable). But from some things I've read even this interpretation might lead to problems down the line. Yes it is all the flats in the block. But have you seen this: https://www.property118.com/has-my-ground-rent-review-being-calculated-correctly/ and also this https://www.cms-lawnow.com/ealerts/2020/07/sun-rays-dont-mean-rent-raise-unintended-consequences-of-rent-review-provisions-for-solar-farm which are what concerned me in the first place

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