Beware These Leasehold Ground Rent Traps
Not all ground rents are fixed at such a benign level. So be very careful what you agree to when you sign the lease.
Always Read The Small Print
Some ground rents rise in line with inflation. At first glance this sounds entirely reasonable but which inflation measure is being used?
Is it the Consumer Prices Index (CPI) at 1.2 per cent*? Or the Retail Prices Index (RPI) at 2.2 per cent*?
Back in the ‘70s it was not unknown for ground rent increases to be fixed immovably at a percentage which reflected inflation at that time – 10 per cent was not out of the question.
And although inflation subsequently fell, the ground rent continued to increase at 10 per cent a year under the terms of the lease – creating a significant cost burden for the poor leaseholders who had signed it.
Even today some leases double the ground rent every 10 years or each time the property is sold.
Remember this when you come to extend your lease. Don’t forget – you’re signing a new lease! Don’t assume the ground rent arrangements will be the same as the old lease. The freeholder may try to change them.
And it’s not just flatowners who are affected by all this. Britain’s big house building groups have been known to sneak some onerous ground rent clauses into the small print too.
Planned New Protection For Leaseholders
The good news is that Parliament has taken notice of the leaseholders’ plight. In December MPs discussed changing the law to help protect tenants from excessive ground rents.
The new legislation they are planning would also include added protection with regard to administration charges.
These are one-off charges incurred by individual leaseholders for matters such as breached covenants (as opposed to the regular service charges paid collectively by all the flats in the block).
All this talk of extra safeguards for leaseholders is very encouraging but Parliament is not renowned for moving swiftly.
So in the meantime you must continue to exercise the utmost caution when signing a lease:
- Always read any lease thoroughly before you sign it. Line by line. Don’t skim read it. Don’t skip bits because they’re boring or because you don’t understand them – that can be a very expensive mistake.
- Get expert advice – leases can be complicated documents with pitfalls hidden in the small print.
Contact Associate Solicitor Matthew Lewis, head of Coles Miller’s Residential Leasehold Department, for more information, 01202 355697.
* Office for National Statistics data as at November 2016.