Onerous ground rent - unsaleable + remortgage issues

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    Onerous ground rent - unsaleable + remortgage issues

    Hi,

    I'm looking for some advice with regards to a leasehold flat that I bought 5 years ago that has an incredibly onerous ground rent. The details are as follows:
    • Block of 12 flats - technically 8 including mine are maisonettes and this is mentioned in the lease, but they are purpose built not converted houses.
    • Valued at around £270k - £300k (well - in theory, it's realistically valued at £0 due to the rent).
    • ~130 years remaining on the lease. First granted in 1975.
    • £500 yearly ground rent for the flat. Originally £40 in 1975.
    • £950 yearly ground rent for the garage which is included on the same lease but referred to separately. Originally £60 in 1975.
    • 5 yearly review of the garage rent based on 'market rate over a 5 year period' - It has gone up by £200 since we bought.
    • Rent cost for the flat is based upon rateable value and the lease says it cannot exceed 2/3 of this value. Reviewed I think every time the lease changes hands using some fairly complicated legalese to do with increase of value. I can provide the text if it helps.
    • Some flats have negotiated a £250 reduction to the flat rent which was apparently done via a solicitor. The freeholder still disputes this and marks it as such on their rent demands.
    • The freeholder is a small company with just a couple of directors. I am unsure if they are part of a larger group but judging by their poor/unprofessional communication I think not. The lease was granted originally by the construction company and I guess the freehold was sold at some point.
    When we originally bought this property we obviously knew the rent was very high. However at that time lenders didn't seem bothered and it wasn't even mentioned by our solicitor or mortgage broker, and properties weren't staying on the market in our area for longer than a couple of days. We could/can afford to pay it each year so we foolishly went ahead with the purchase as we liked the flat.

    Fast forward to the present and we want to move at some point in the next 1-2 years. However with the current leasehold media coverage it's simply impossible as not only would no buyer even entertain a property with this onerous rent, no lender will lend on it. Other residents have been trying to sell for over a year also, and I've heard a couple have had difficulty remortgaging.

    I've done some rough calculations/estimates for either buying the freehold or doing a statutory lease extension and I think we would be looking at at least £30k + costs? Getting the other 11 leaseholders to stump up that kind of cash would be nigh on impossible.

    So I guess what I'm asking is: Do we have any argument against the freeholder here? Are there *any* provisions in law that could help us in regards to what is considered an onerous ground rent? Are our only options to cough up £30k+ or wait and hope that the Gov introduces some new legislation to help us? The reading I've done on potential legislation seems to indicate it's likely that changes will be targeted at new leaseholds only.

    It's a really depressing/stressful situation so I'm really grateful for any advice on this

    Thanks!

    #2
    Suggest you visit the LKP website and contact Sebastian .Why is the ground rent £500 ? it should double from £40 every 25 years.?

    Comment


      #3
      Originally posted by Gordon999 View Post
      Suggest you visit the LKP website and contact Sebastian .Why is the ground rent £500 ? it should double from £40 every 25 years.?
      There is no doubling clause in the lease.

      LKP are my next port of call for sure.

      Comment


        #4
        I am the very last person to stand up for freeholders, or for the status quo of the FH-lessee relationship as implemented in law.

        However I am afraid I would be outraged if there were any legislative attempts to overturn your contract -- you bought a deal which would have been priced to reflect what that deal was. This is the very last thing that should be legislated (especially when there are no plausible legislative attempts to deal with actual contractual breaches and thefts by freeholders and where upholding existing laws and contracts are nearly impossible for leaseholders).

        But anyway the ground rents you mention have broadly increased in line with inflation (general prices have gone up 8 fold since 1975) - so it is no more expensive now than it was then. If government edicts were to reduce it without compensation that would be theft in my book.

        Comment


          #5
          Your best bet is the formal (statutory) lease extension route with expungement of ground rent. But worth approaching the freeholder first to see how much he wants for an informal extension at reduced rent.
          you are doing exactly the right thing to sort this before you need to sell but if you think the rent is calculated in error then provide detail of the clause on here.

          Comment


            #6
            AndrewDod,

            I don't have a problem with the costs as such, more with not being able to sell due to changes in attitudes towards leasehold properties. Being trapped (or forced to spend >£30k) in a property because of this is not a great feeling. Neither is potentially having to pay very high mortgage rates because no lender will touch it when it's remortgage time - which wasn't the case when we bought.

            Also in regards to the increases - They are 16.25 & 12.5 fold increases respectively which is some way above 8. I've not checked if an 8 fold increase since 1975 is accurate though, just going off your number.

            Comment


              #7
              Why not let it out?

              Comment


                #8
                We are considering that as well, but the extra stamp on top of saving an entire new deposit is off putting. It feels like a toxic asset at this point so honestly would rather just be rid.

                Comment


                  #9
                  Rob1234,

                  I agree that the attitude is ludicrous, and a problem in itself. But that may dissipate when 15% inflation hits to pay for the jollies being handed out now both to the (possibly) deserving and to many crooks now getting a double wage.

                  Since 1975 it is actually about 8.5 fold general inflation (much more for property inflation). But yours comes in jumps so if it only recently increased 12 to 15 fold may still be in the right ballpark.

                  £60 ground rent was a lot for a garage in 1975 - and I suspect it was sold for peanuts and the ground rent is really a long-term rental. So it would be outrageous if it were essentially given away now (you would essentially be using the garage rent free).

                  I know some on here like LKP, but they have done much to divert from the real problems of leasehold whilst winding up the very issue that has harmed you (the non-issue of doubling ground rents and its perception)

                  Comment


                    #10
                    £60 would have been about the annual cost of a garage rental in 1975, so nobody would have bought it unless the asset price was close to zero (which is what I suspect happened).

                    Comment


                      #11
                      To be clear about the garage it's included in the lease for the property, just charged separately. The property was originally sold for £11350 in 1975 according to the lease - Looks about right from a quick look on the land registry.

                      That may well be true about LKP, but the cat is well and truly out of the bag now so there doesn't seem to be much that can be done apart from jump on the bandwagon. Not sure what choices I and others in my situation have really, the market has changed outside of my control and ultimately if it's me or the freeholder who's going to suffer I'm going to do my best to make sure it's not me. Saying that, a compromise would be the best outcome however.

                      I think it's also worth making a distinction that whereas I entered into a contract in to buy a home, the freeholder purchased a speculative investment. Which in my view (obviously ) muddies the waters somewhat if we're going to talk about the morality of the situation i.e. is it theft or would he simply become a victim of circumstance as I have.

                      Comment


                        #12
                        Originally posted by Rob1234 View Post
                        I think it's also worth making a distinction that whereas I entered into a contract in to buy a home, the freeholder purchased a speculative investment.
                        No they didn't, or at least didn't do what you imply. They sold a contract priced based on its terms. And you did not buy a home, you are renting it.

                        It is only speculative to the extent that all investments are speculative. I have no real idea what the gold price is going to be 5 years from now.

                        Comment


                          #13
                          There is a law commission report and recommendations which you may find interesting reading.

                          Comment


                            #14
                            AndrewDod,

                            Well, they bought the freehold to a property as an investment, why else would they buy it? Any investment is obviously speculative as you say. Laws, regulations and such change sometimes which can and do affect existing contracts. This is something that they would/should have considered when buying the investment, much as I should have considered the future sale-ability of the lease. This is a bit off topic though.

                            Re buy vs renting: Poor choice of wording, leasehold is technically renting of course.

                            Comment


                              #15
                              Originally posted by Rob1234 View Post

                              Well, they bought the freehold to a property as an investment, why else would they buy it? Any investment is obviously speculative as you say. Laws, regulations and such change sometimes which can and do affect existing contracts. This is something that they would/should have considered when buying the investment, much as I should have considered the future sale-ability of the lease. This is a bit off topic though.
                              Possibly, but most of the time when governments start interfering in existing private contracts it is a bad thing -- the thin end of the wedge of fascism/totalitarianism. Obviously there are exceptions (contracts about illegal things, major health and safety issues etc).

                              Freeholds usually start with people building properties. They can't sell flats outright for obvious reasons, which is why there is this legal structure in place (a structure I have already indicated is extremely problematical, largely because existing laws and contracts are flouted with impunity, and corruption is unchecked). But the fact is that there does have to be such a structure which gives someone ongoing rights and obligations. Remove that and nobody will build these sorts of properties. It isn't just some sort of random speculation involving thin air.

                              The economy is normal people doing stuff - government is a tiny element of the economy -- which the current crisis has shown -- the government bankrolling just a tiny part of the real economy for just a few months is enough to cause devastation for a generation.

                              Comment

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