Rent Act restricting ground rent

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  • Section20z
    replied
    Thanks , that makes complete sense and clears up why they would not want a long lease to be covered by the Rent Act.

    Of course the buyer was aware of the new rent and should have adjusted premium accordingly. The novel feature here is that the ground rent increases with any "difference" in the sale price (not increase) so the ground rent has gone up a lot as the lease is now short and sale price has dropped .
    I would point out that the ground rent has not been challenged but I was pre-empting an issue if it ever came to trying for a possession order on the 3 month rule, though your advice would make that look unlikely too.

    Thanks again for the very useful advice.

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  • sgclacy
    replied
    The Rent Acts referred to in the old lease precluded a premium being charged for the assignment of a lease and of course that is why there was a restriction in the old lease.

    However the current issue with ground rents exceeding £250 outside of London is that some, but not all lawyers, believe that it makes it mandatory for the court to grant a possession order if the rent is more than three months in arrears. A completely different problem i.e. the inability legally to assign a lease

    Accordingly, I believe the OP can charge the rent as set out in the lease. If that is what the lease provides then the perceived unfairness to the lessee of such a high rent should have been considered at the time of purchase of the lease and reflected in the price paid for the property.

    Needless to say, many didn’t appreciate the point as it was tied up in “legalese” or their solicitor/surveyor let them down or the developer/vendor had them in a half nelson and had no choice but to sign up.

    Again if the financial burden imposed on the property is correctly disclosed by stating its NPV and the formula for it (ie in this case X% of the market vaue of the property) shown in the prescribed clauses at the start of the lease, all of the current near - hysteria over ground rents would not exist. Purchasers would be aware of what they are signing up to and reflect the value of that burden of the paying of a ground rent in the price they offer for the property.

    The ground rent could be £10,000 a year linked annually to the RPI making the NPV value of the rent about £300,000. So provided a flats worth say £400,000 with a token rent is marketed with a ground rent I have illustrated clearly showing its NPV to be £300,000 and the flat is sold for around £100,000 – the purchaser can never complain about the size of the rent.

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  • Macromia
    replied
    Originally posted by Section20z View Post
    My apologies for not being clearer, the lease doesn't allow the freeholder to pick a ground rent at random, it simply rises commensurate with sale price which is quite a common mechanism and in this case gives rise to a new ground rent of £650.
    So, presumably, the part of the clause that you have not quoted allows the ground rent at each new assignment to be set as a percentage of the sale price?

    This seems backwards to me (unless there is a more complicated formula used), because it means that the higher the sale price, the higher the annual ground rent will be, when the lease premium should be valued higher if the annual ground rent is low, and be reduced if higher ground rent is due annually.
    Still, I guess that the potential purchaser should know what they are committing to, and it's a way of (approximately) linking ground rent to inflation.

    Originally posted by Section20z View Post
    The only query I have is in respect of the caveat which restricts the ground rent amount to a figure below what brings it within the rent act, but unless anyone has specific experience with this issue then I will leave it at the higher figure
    I'd suggest that if you don't know how this part of the clause affects the ground rent, you should seek proper legal advice from a lawyer with experience in leasehold law to confirm that the ground rent you are setting isn't breaching the terms of the lease.
    I guess that this might not matter if the purchaser agrees to the new ground rent though (and definitely won't

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  • Section20z
    replied
    My apologies for not being clearer, the lease doesn't allow the freeholder to pick a ground rent at random, it simply rises commensurate with sale price which is quite a common mechanism and in this case gives rise to a new ground rent of £650.
    The only query I have is in respect of the caveat which restricts the ground rent amount to a figure below what brings it within the rent act, but unless anyone has specific experience with this issue then I will leave it at the higher figure

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  • Macromia
    replied
    Originally posted by Section20z View Post
    I am the Freeholder and so am legally allowed to grant extensions but not sure that is relevant in this case.
    It helps clarify your position.

    Originally posted by Section20z View Post
    The question is what rent should be charged, the correct figure of £650 or perhaps £249 to keep it outside of the rent Act.
    My understanding is that ground rents over £250 pa (£1000 in London) then become assured tenancies under the rent Act which obviously makes forfeiture much easier but this lease clause (as quoted in full above) seems to preclude charging that amount.
    The Housing Act 1988 seems to be the current legislation that would make a long lease, outside of London, with a ground rent of over £250 an assured tenancy, but the part that you have quoted from the clause in your lease would still seem to (perhaps) apply due to the reference to subsequent legislation.
    Housing Acts/Rent Acts are passed so frequently though that it can be difficult to tell what applies.

    I'm still curious to know what the full text of the relevant lease clause(s) say (you have currently only quoted part of the clause).

    Personally I think that a clause that allows the freeholder to pick whatever figure he/she wants for annual ground rent after the lease has been purchased and the new leaseholder wants the lease assigned would be a red flag for many potential purchasers.
    Hopefully this has been flagged up by a potential buyers solicitor, and they want you to commit to a figure before they proceed with a purchase.

    How did you determine that the "correct figure" is £650 by the way?

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  • Section20z
    replied
    Thanks for response , I am the Freeholder and so am legally allowed to grant extensions but not sure that is relevant in this case.
    The question is what rent should be charged, the correct figure of £650 or perhaps £249 to keep it outside of the rent Act.
    My understanding is that ground rents over £250 pa (£1000 in London) then become assured tenancies under the rent Act which obviously makes forfeiture much easier but this lease clause (as quoted in full above) seems to preclude charging that amount.

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  • Macromia
    replied
    It's not really clear what you are asking here. My understanding of the Rent Act 1965, is that it covers rent for tenanted properties, not the ground rent that applies to leasehold (that would have been covered by the Leasehold Reform Act 1967 (which has since been largely superseded).

    What do you mean when you say "one of my ground rent leases"?
    Are you the freeholder of the property, or do you have a head lease of some sort that allows you to collect ground rent? If a long leaseholder wanted to vary, or extend, their lease would you be legally allowed to grant this?

    What is the full text of the clause that you are referring to?

    Leave a comment:


  • Section20z
    started a topic Rent Act restricting ground rent

    Rent Act restricting ground rent

    One of my ground rent leases has a mechanism for the rent to rise on any assignment "......provided that such rent shall never exceed the amount which would bring this lease within the provisions of the Rent Act 1968 or any Act amending or re-enacting the same"
    The rent should be £650pa which I assume invokes this restriction (it is outside London) but there is no alternative mechanism to calculate a rent where this applies .
    What should I be charging ???

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