Ground Rent increase - allowed or not?

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    Ground Rent increase - allowed or not?

    Hi all, any help/advice much appreciated.

    Situation - Our freeholder has sent out this years ground rent charge with a 50% increase, prior to creating a RTM company we had constant issues with being charged large commissions on everything. With that in mind i requested that they show me the calculation used to work out the increase to ensure it was fair, they have since come back and said that they had calculated mine incorrectly and now require £100/year ground rent (100% increase), reason given - our lease is different to the other flats with our ground rent being RPI linked and the others not. The others have shown me their leases and they are all identical in reference to ground rent so this was clearly a lie.

    The lease commenced on the 18th January 1993 for 125yrs and ground rent can be reviewed every 5th anniversary of this date, with that in mind can they legally increase the ground rent this year as its not on a 5yr anniversary of the commencement of the lease? The demand states that the rent due is to cover the period from 01/01/19 to 31/12/19, should it not read 18/01/19 - 18/01/20, no where does it mention that a proportion is due to an increase last year that wasn't added to the demand.

    I'm not of a legal background so don't fully understand the legal wordings of it all but am trying to learn!

    RPI linked leases which can be reviewed every 5 yrs seem quite a scary prospect now i understand them more, it seems that rent could increase much quicker than values and soon make the flat an unattractive purchase to future buyers?

    Any advice greatly recevied,

    Thanks

    #2
    What can be charged for ground rent, and when it can be increased, with depend on the wording in all relevant parts of your lease.
    You would need to post the exact wording used in the lease in order for anyone to have any chance of giving you reliable advice (and after receiving advice will likely need to get it checked by someone who is legally qualified and has a copy of the lease and all other relevant paperwork in front of them).

    Regarding the period for which ground rent is being demanded, this does not necessarily have to be linked to the date the lease was originally signed (the lease may state different dates apply for ground rent/service charge years), and ground rent demands can be back-dated for up to 6 years.

    Comment


      #3
      The only effect of the five years should be to avoid the ground rent increasing every year. You will end up paying less, in the long term, than if it was RPI based with annual increments.

      The five year to January RPI increase should be about 7.5%, not 50 or 100%. Are they catching up many missed increments, and if so, exactly what does the lease say?

      RPI increases do not multiply by the RPI change since the beginning, only by that since the last increase, or maybe even just the last review.

      If you have to pay the ground rent at all, you will have received a notice saying on what day the lease says it is due. I can't imagine a lease would not give the date. The date is not necessarily the start of the lease. Older leases will have rent payable on "quarter days", the next of which is 25th March.

      Comment


        #4
        Thanks to both of you for your replies,

        leaseholder64 - in reference to your comment on catching up on missed increments, i believe that's exactly what they're doing. the sum they say they have used is (ground rent x Jan 18 RPI)/RPI Jan 1993 = 50x276/137 = £100.72.
        I've tried to forward project this using how much RPI goes up on average every 5 yrs and come to the conclusion that the ground rent could potentially almost double every 5yrs, this is what has worried me, i might be totally wrong?

        Comment


          #5
          These 2 are the fourth schedule which concern how the rises are implemented, i fully understand that if i'm to take this further i will likely need to pay for legal advice but hoping to get as far as i can and understand whats happening before i do that.

          Many thanks

          Comment


            #6
            The whole point of RPI is that it tracks inflation. To a first approximation, the ratio of ground rent to the value of the property should be constant and the ground rent should be constant.

            The figures you quote show RPI doubling over 25 years, not 5 years.

            Comment


              #7
              Thanks a lot for that, i think i now understand it, when i was trying to forecast future increases i was using the new ground rent £100 in the calculation rather than keeping the original, that's why it seemed that it could rise unbelievably quickly!

              So in laymens terms - this rise seems significant as it hasn't been risen in 25 years, but this is allowed even though not implemented on a 5th year anniversary as stated in lease?

              Future rises if enforced each 5 years would only reflect the change in RPI over that period and therefore be much smaller percentages.

              Really appreciate people like yourself who are willing to help/educate others,

              Many thanks

              Comment


                #8
                I read the schedule which was posted in 4 & 5 . My understanding is the RPI applicable to £50 ground rent starting in Jan 1993 is based on RPI fpr Dec 1992 = 139.2.

                The most recent ground rent review in Jan 2018 would be using RPI for Dec 2017 ( = 276 )

                So the annual ground rent chargeable during current 5 years period , starting from Jan 2018 = £50 x 276/ 139 = £100 approx.

                Comment


                  #9
                  You are correct that ground rent is payable from the 18 January 2019 to 17 January 2020 so the demand appears to be invalid.

                  You are correct again that the current year is not one for review but the freeholder seems to be attempting to adjust the rent as though it had been reviewed on 18 January 2018. The risk is that if you push this point, the freeholder will go back and amend the previous demands. As Macromia says, the freeholder can go back 6 years.

                  Your lease is ambiguous, it does not appear to state “the RPI last published before the date of the lease”. What is the date of the lease? It refers to the initial ground rent being calculated from the date hereof to the 18th day of January next, which suggests that the date was after 18 January 1993. The lease states that the “rent payable is to be revised” but then only refers to increases and does not mention any reduction in those rare periods when the RPI falls.

                  The freeholder’s calculations are incorrect. The January 1993 RPI would have been issued in February 1993 so unless the date of the lease is after that date, it does not appear to be the correct base figure and the January 2018 RPI would not have been issued when the demand should have been issued for the ground rent due on 18 January 2018. What was the date of the s166 notice which accompanied the demand?

                  At the very least, when there is doubt, you should be given the benefit.

                  Comment


                    #10
                    Evening all, so thanks very much for all the advice,

                    It would seem that although there are slight discrepancies between their demands and the lease i could actually walk into a bigger problem by challenging them (6yrs of previous demands amended) so probably best let it rest.
                    Ultimately it seems that what they are doing isn't unreasonable maybe just slightly incorrect, i now know how RPI related leases are calculated and not in a lease that has potential to rapidly grow, that was my main worry.
                    If i'd of not questioned the first demand for £75 they wouldn't of altered it to £100 - everyday's a school day, been well educated by you all in the last 24hrs!
                    Thanks to you all

                    Comment

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