Mar 13

Buying a Leasehold? Check the Ground Rent.

Posted by gowenstevensadmin on Monday 13th March 2017

In England and Wales, most owner-occupied flats are owned on a long leasehold basis. They have a lease of at least 21 years when first granted.
Houses can also be owned on a long lease. This is not common. But there are some signs that some developers are selling new houses on a long leasehold basis and not on a freehold basis.

But recent press reports have highlighted dangers for unwary buyers.

Some developers have started to sell newly built flats and even houses on a long leasehold basis with very high and significant ground rent increases which are provided for in the lease. As well as the short term pain of high ground rents, this will have a significant impact on the cost of obtaining lease extensions. The payments to freeholders will be very much higher, at the expense of the leaseholder.

On 21st November 2016, The Daily Telegraph reported:

http://www.telegraph.co.uk/money/consumer-affairs/...

“Mr O’Kelly cited the case of one major freehold buyer, who demanded £6,932 annual ground rent from leaseholders who had previously been paying £300 a year. What the occupants did not realise, and what was not pointed out to them by their conveyancing solicitor when they first purchased the properties, was that the ground rents doubled every 10 years, with uncollected back payments dating from the Seventies. …

In one recently reported case a buyer paid £101,000 for a flat in 2010 which is now said to be unsellable because ground rents are set to spiral to £8,000.”

In another case, The Guardian

https://www.theguardian.com/money/2016/oct/22/smal...

reported on a case where a first time buyer bought a one bedroom flat in Birmingham for £ 58,000. She had been told that the ground rent was £ 250 per year.
She was therefore stunned to learn when she moved in that there was a demand for £ 8000 per year in ground rent.
She was even more shocked to learn that in the small print of the lease was a clause providing that the ground rent would double every 10 years. In 35 years it will have increased to £128,000 per year. In 95 years it will be £8m per year