How To Deal With Doubling Ground Rent19th Sep 2019
Mortgage lenders are reluctant to lend on a leasehold property if the ground rent rises above £250 per year (£1,000 per year in London) at any point during the lease term.
This issue is becoming more common. It could jeopardise your chances of:
- selling your property
- remortgaging.
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Why Does The £250 Ground Rent Threshold Matter?
If your ground rent is £250 per year (outside London) and you don’t pay it, the freeholder/landlord may be able to take possession of your property. You won’t have the normal safeguards that exist otherwise.
Why £250 per year? That is when laws on Assured Tenancy take effect – giving the freeholder/landlord significant powers.
They can take you to court. They can apply to take possession of your property. And you would have no defence – it is mandatory for a court to order possession of the property (subject to further legal criteria).
So if your ground rent is likely to exceed £250 per year – either now or at some point in the future – you are potentially putting your home at risk if you fail to pay.
Possession And Forfeiture Under The Terms Of The Lease
You may be forgiven for thinking that the forfeiture powers outlined above seem heavily loaded in favour of your freeholder/landlord.
After all, you’re not a short-term renter who pays hundreds of pounds per month to live in someone else’s flat for a year or so. You’re a long-term leaseholder – you paid a huge sum of money to buy a property with a lease spanning decades. It’s your home!
But sadly the law doesn’t share your view. As far as the law is concerned, the freeholder is the landlord and you the leaseholder are still classified as a tenant. You bought a lease – the right to live in the property for a defined period of time. You didn’t buy the land underneath it.
So pay your ground rent on time. You potentially risk losing your home if you don’t.
But what if you’ve discovered that your lease has a ground rent that doubles at set intervals? What if you signed it in a rush? What if you feel you were caught out by the small print?
Dealing With High Ground Rents
You probably feel that you’re caught between a rock and a hard place:
- you have to pay the very high ground rent
- you’ll lose your home if you don’t.
Not a great choice is it? You have several options…
Option 1 – Buy The Freehold
You and your fellow flat owners may have the collective legal right to buy the freehold of your property – the existing freeholder/landlord cannot object. And if they try to drive a hard bargain on the price you can take your case to an independent tribunal.
This right to buy the freehold is called collective enfranchisement. Once you have completed the purchase you will no longer have an external landlord. Commonly, you and your fellow flat-owners will each own a share of a company that owns the freehold.
You will then be able to amend your lease and reduce the ground rent to a peppercorn – ie, virtually nothing at all!
Find out more here about how much it costs to buy the freehold, how long it takes and what you’re getting for your money.
Option 2 – Buy A Statutory Lease Extension
Provided you have owned your flat for two years, you may have the legal right to extend your lease – again, your freeholder/landlord cannot object. The process of adding extra years to your lease will reduce your ground rent to a peppercorn.
By extending your lease (or buying the freehold), you will make your property more desirable to prospective buyers. Mortgage lenders are more likely to loan to them.
Option 3 – Add Extra Provisions To Your Existing Lease
This method is far less certain. You can try to get some provisions added to your existing lease to reduce the impact of the ground rent problem. But your landlord is under no obligation to agree to your request.
You could end up wasting time and a significant amount of money. And you would be liable not just for your own legal costs; you would also have to cover your landlord’s costs too. If you have a mortgage lender they will need to know too.
So buying the freehold or extending the lease are by far the more certain routes.
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This document is not intended to constitute and should not be used as a substitute for legal advice on any specific matter. No liability for the accuracy of the content of this document, or the consequences of relying on it, is assumed by the author. If you seek further information, please contact Managing Partner Neil Andrews at Coles Miller Solicitors LLP.
