There has been a great deal of publicity recently surrounding the issue of ground rent escalation clauses in connection with leasehold properties.
In the past, most houses were sold with freehold titles meaning the owner would own the land beneath the house, the house and garden land itself, and the airspace above.
However, in recent decades there has been an increase in new estates being sold off as houses with leasehold titles. This means that the developer retains the freehold and can seek to charge a yearly ground rent to the house owners. It also means the developer can impose certain restrictions, like prohibiting extensions or alterations without the developer’s consent. House owners seeking consent can sometimes be charged administration fees of hundreds of pounds before they are granted the consent by the developer.
Traditionally, ground rents were normally under £100 and would be increased periodically by a fixed amount. For example, under a 125 year lease, the initial ground rent may be £100 per annum going up after 25 years to £125 per annum and after 50 years increasing to £150 per annum and then staying at that level for the remaining 75 years of the term.
In recent years, developers have been using new formulas to deal with these rental increases, for example doubling every ten years. These ‘doubling’ formulas do not appear unreasonable at the outset of the lease, however the rental liability quickly increases and will ultimately make a house unsellable.
For example, under a 125 year lease, with an initial ground rent of £100 per annum which doubles every ten years, the rent would increase as follows:
Year 1 - £100
Year 10 - £200
Year 20 - £400
Year 30 - £800
Year 40 - £1,600
Year 50 - £3,200
Year 60 - £6,400
Year 70 - £12,800
Year 80 - £25,600
Year 90 - £51,200
Year 100 - £102,400
Year 110 - £204,800
Year 120 - £409,600
If you are considering buying a leasehold house, you should ensure you check the ground rent provisions carefully, or ask your solicitor to confirm the position. It is your solicitor’s responsibility to ensure that none of the provisions in the lease will affect the value of your house in the long term or your ability to sell it, and to report to you, and your lender, in full.
It is also worth remembering that defaulting on payments of ground rent (regardless of how unaffordable they may be) may lead to legal proceedings being commenced, and possibly a County Court Judgement (CCJ) being entered against you. This would have an impact on your credit rating and may even result in forfeiture of the lease, resulting in the loss of your home.
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Butcher Barlow directly.
Published on 23rd November 2017
(Last updated 21st March 2018)