What is ground rent

by Kidd Rapinet on August 9, 2018
Yogesh-Patel

Historically, ground rents would not have been the subject of much contention, if any. It was usually a fixed term contained in a lease stipulating a relatively low or nominal rent paid by a leaseholder to a freeholder (also known as a ‘Peppercorn Rent’ when the ground rent is zero) representative of the value of the ground that was being let.

This position has changed in recent years and we now see leases containing clauses that result in rent escalation at certain intervals or increases in accordance with a particular formula and index linked to the Retail Performance Indicator (RPI).

Some leases may even stipulate a doubling of ground rent every 10 years. These types of rent-escalation provisions are usually found in leases for new-build properties and can result in leaseholders being locked into paying onerous and – at times – crippling sums of money on ground rent amounting to far more than a mere peppercorn!

There are various adverse consequences of stark increases in ground rents and having ground rents at high levels. Some leaseholders may find that their properties are rendered unsaleable as many lenders refuse to grant mortgages where there are unreasonable ground rent provisions within a lease.

What you can do

Until the government has finalised its proposals for reform in this area – bearing in mind that reforms may not be retrospective – if you have a doubling ground rent clause in your lease you could appeal to the good nature of the freeholder/developer and ask for the clause to be removed or varied by deed. A clause that stipulates that ground rent should rise against RPI is much more favourable than a doubling clause.

Prevention is better than the cure

As the age-old saying goes: prevention is indeed better than the cure. If you are buying a leasehold property, your solicitor has a duty to advise you on the terms contained within the lease and their effect. If your solicitor also acts for your lender, they must also report to the lender on whether any increases in ground rent may materially affect the value of the property.

When we are instructed on a purchase at Kidd Rapinet, we carry out a robust and thorough analysis of the terms contained within a prospective buyer’s lease and provide a written report containing a clear breakdown of what it all means for the buyer. As a result, our prospective purchasers are fully advised on what they are entering into and aware of the implications of any onerous obligations. They are equipped with all the information to make an informed choice on whether to proceed with the purchase or not.

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

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