Doubling rent

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    Doubling rent

    My solicitor has strongly advised me against purchasing a flat as it has just come to light that the recently renewed lease has had its ground rent increased 100% and it is also on a doubling basis. My solicitor has advised us that mortgage companies are becoming more reluctant to offer mortgages on these terms and we would certainly have trouble selling.

    Can anyone offer any information on this situation?

    #2
    Is the new rent more that £250 or more than 0.1% of the purchase price?

    How frequently does the rent double?

    Rationally, doubling every 25 years is probably not going to be an issue, but doubling every 10 would be, as one is slower than inflation and the other faster. However, there does seem to be some level of irrational paranoia about any escalating ground rent.

    Comment


      #3
      Yes it is on both counts. it is £300 on a purchase price of £230,000. Doubling every 33 years. I was only increased last year when the lease was extended from £30 to £300

      Comment


        #4
        Doubling every 33 years is way way below even the lowest estimates of inflation. That sounds like a great deal. Doubling every 15 years or so would be at about general inflation (or even every 5 years given a few years of a Corbyn disaster).

        Comment


          #5
          This near hysteria that has broken out of late makes the ground rent terms on this flat seem like a problem to some buyers and lenders. There is nothing worrying about the terms of this lease - £300 is not a trival sum but neither is it so large as to cause worry and panic. Let’s get some perspective on this ;-

          1) The average mortgage of a first time buyer is around £170,000. If the mortgage rate rises by 0.5% they will see their outgoings increase by £834 per annum dwarfing the ground rent of a few hundred pounds

          2) A TV licence is £150 per annum, a mobile phone contract is invariably more than £25 per month (£300 per annum)

          3) An owner of a lap top and large screen TV and a mobile phone, will easily expect depreciation on those three items to amount to a great deal more than £300 per annum

          Yet if your ground rent is £300 per annum i.e. more than 0.1% of the value of the flat, your flat could be rendered un-mortgageable by many lenders causing prices to fall.

          This is the consequence of this near hysteria. What needs to happen is the Net Present Value of the Rent needs to be shown next to the premium paid for the lease. The total consideration paid for the flat needs to be the sum of the premium paid plus the NPV of the ground rent with SDLT payable on the total to reinforce and make purchaser sit up and appreciate the liability they will be taking on in paying that rent throughout the term. If the ground rent is high then the NPV will reflect this and a purchaser will need to trim the price to reflect it. The Government to periodically set the discount rate

          A ground rent, however big, is not automatically onerous. It is only onerous if its value (or more to the point its burden) on the property is not reflected upon at the time of entering into the lease. A flat worth £300k and sold for £50k with a ground rent of £10k per annum has not got a onerous lease. That ground rent is not onerous as the burden of that rent is fully reflected in the price paid for the flat. If that lessee was to moan about the rent, we would find it irritating as they paid a greatly reduced sum for the flat.


          It is often said the ground rent is for no service, and indeed it is for no service – the lease makes that very clear. Therefore, it is a burden on the property and forms part of the overall consideration the freeholder seeks at the time for granting the lease. The purchaser must consider it before taking on the lease. I do find it surprising that there are MP’s who believe that existing ground rents should be trimmed back to £250 and future raise abolished. The terms of the ground rent are set out in a lease where the purchaser, his solicitor and valuer look at over a period of two to three months and then sign up to – why (unless undue influence was placed on the lessee) should the terms be varied without adequate compensation to the freeholder? To suggest that rents should be varied in the manner MP’s would like would result inevitably with the Government facing challenges under Human Rights legislation. Again, this illustrates the near-hysteria that has broken out. If the sums were crippling large causing households to buckle under one may see some logic, but in all but a few cases the rent involved falls within a few hundred pounds why should such a challenge be made

          This is England not Zimbabwe . Contracts should be honoured so others can place reliance on them – to help purchaser understand what they are entering into further information should be given and improved, hence my proposal that the NPV of the rent be shown



          Comment


            #6
            Originally posted by AndrewDod View Post
            Doubling every 33 years is way way below even the lowest estimates of inflation. That sounds like a great deal. Doubling every 15 years or so would be at about general inflation.
            I would agree with the above, my own experience is a ground rent of £350 on a purchase price of £63,000 doubling after 21, 46 and 71 years on a 125 lease.

            The things you should be concerned of is the current Service Charge, who currently manages the property, value of any Reserve fund and any planned major works in the next 5 years.

            Lastly if the flat is outside London and over £250 you may wish to read the following;

            https://www.mishcon.com/news/publica...ed_ast_05_2017


            Comment


              #7
              Please listen to your solicitor. He is advising you correctly.
              0.1% is a problem which many lenders are now refusing to lend on.
              The massive jump from £30 to £300 g/r means the lease extension was an informal one rather than a formal one. This is not good! (If unsure of the difference between informal v formal lease extension, Google).
              The fact the F/H has raised the g/r by 10 times the amount would suggest he may well have inserted other onerous clauses into the lease. Be careful. Make sure your solicitor (should have excellent knowledge of leases as many unpleasant things can be deeply embedded/well hidden) reads the lease with a fine tooth comb.
              Finally if you should wish to sell in the future, you will have problems.
              If you want more information join the National Leasehold Campaign.
              I would listen you your solicitor.

              Comment


                #8
                Thank you so much. What you have said makes sense but the solicitor has put the fear of god into us and the mortgage broker also seemed concerned when we informed him. We are so close to exchanging that it is a bitter pill to swallow not to mention all the money we have lost. I think if we went ahead we would be continuously fretting about selling on.

                Comment


                  #9
                  Originally posted by michelle230 View Post
                  The massive jump from £30 to £300 g/r means the lease extension was an informal one rather than a formal one. This is not good! (If unsure of the difference between informal v formal lease extension, Google).
                  The fact the F/H has raised the g/r by 10 times the amount would suggest he may well have inserted other onerous clauses into the lease. Be careful..
                  the increase in the ground rent would be perfectly reasonable offer to restore the loss of purchasing power in the ground rent due to the adverse effects on inflation over the last 50 years

                  if you were working over the last 50 years and your employer refused to raise your salary to help deal with the adverse effects of inflation you would feel aggrieved and probably leave . If you were renting a property out on something like an assured tenancy during that period you would have wanted and needed to raise the rent in line with inflation- so increasing a rent by a factor of 10 as part of an informal deal is to be expected

                  in any event how can a ground rent by classified as onerous if it is made patently clear before the lessee takes up the offer ? It may very well have resulted in a lesser premium - if that is the case then it would be boarderjng in two faced to accept the lower premium and then when the lease is signed up to then moan the rent is unfair

                  the fact the reviews are every 33 yrs would suggest that no nasty hidden clauses have been inserted

                  The terms appear wholly reasonable and transparent and for terms like these mentioned by the OP as being seen as onerous illustrates just how much near hysteria has broken out


                  Comment


                    #10
                    This thread is absurd. There are many many problems with leasehold properties. Contractual obligations which are clearly stated and which increase ground rent according to to some estimate of inflation is hardly one of them. The many other mechanisms via which freeholders are enabled and facilitated to make money outside of of ground rents and reversion rights are far more important (various backhanders, commissions and outright theft of reserve funds).

                    Solicitors should be advising clients to consider carefully whether they wish to leasehold properties at all until the non-ground-rent problems have been resolved. They should not be mis-advising them as they have been here. Politicians and hysteria generators seem less concerned by theft than by contractually agreed (and usually reasonable) obligations.

                    Comment


                      #11
                      This a flat. The alternatives to leasehold flats are likely to make them even less saleable.

                      Comment


                        #12
                        Originally posted by leaseholder64 View Post
                        This a flat. The alternatives to leasehold flats are likely to make them even less saleable.
                        Works perfectly well in Scotland.

                        Comment


                          #13
                          Andrew - agree with what you say
                          However regarding the escalating ground rent, this IS a problem. Lenders are not lending on onerous ground rent terms.
                          Many sales are falling through and the number is growing. People are trapped, literally in their properties and unable to move.

                          Comment


                            #14
                            Originally posted by SandraHope View Post
                            Thank you so much. What you have said makes sense but the solicitor has put the fear of god into us and the mortgage broker also seemed concerned when we informed him. We are so close to exchanging that it is a bitter pill to swallow not to mention all the money we have lost. I think if we went ahead we would be continuously fretting about selling on.
                            Sandra - you have made the right decision. You are very lucky to have had such an excellent, diligent solicitor. Sadly many don't!

                            Comment


                              #15
                              Originally posted by michelle230 View Post
                              Andrew - agree with what you say
                              However regarding the escalating ground rent, this IS a problem. Lenders are not lending on onerous ground rent terms.
                              Many sales are falling through and the number is growing. People are trapped, literally in their properties and unable to move.
                              I agree that a number of lessees cant sell their flats because the ground rent is greater than 0.1%and lenders will not lend. But that is not the failing of the landlord it is the irrational behaviour of lenders. The landlord has done nothing wrong, he puts the deal on the table and the lessee with the benefit of legal advice and a surveyor agree the terms and enter into the contract.

                              Maybe a solution is for a lessee to have the right to have just the rent lowered, not have the term increased. This could be made very simple and would not require a valuation of the property, simply a calculation of the rent. The legal and valuation fees could be capped or reduced is prescribed rates were introduced

                              Comment

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