Onerous ground rent - unsaleable + remortgage issues

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    #16
    I don't think there's a particular need to worry about fascism in regards to leaseholds though! It'd be the opposite anyway wouldn't it? Seizing land for the benefit of the common people? :P

    Ultimately whether by a soft approach of slow legislation or not leasehold is eventually going to disappear, at least for residential property, as it has across almost the entire world. People are still building blocks of flats everywhere else so I'm sure we'll manage. It just needs to be handled carefully to avoid bankrupting pension funds and such who are heavily invested into ground rents, and at the same time avoid leaving hundreds of thousands of people trapped for life in properties no one wants.

    I take it you're not a fan of the furlough system? No easy way out of that one without mass economic devastation unfortunately. Without it instead of printing enormous amounts of money (effectively, I guess) we'd instead have mass unemployment like the US. It does rather make a mockery of the magic money tree jibes that have been used for years though.

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      #17
      HMG have said that they are committed to coming down hard on what are rightly known as "Onerous" Ground rents. There is supposedly a change in the law coming (although I cant tell you exactly when) by which you will be able to get out of these sharply increasing ground rents fairly favourably. You say you bought the flat 5 years ago and there was no warning from the solicitor who acted for you as to the onerous nature of the lease. I think you could sue successfully for negligence. In my view it is within the scope of the lawyer's retainer to draw to your attention such an unusual and potentially damaging term of the lease. Have a look on the net to see if there is a lawfirm who will act "no win no fee" ie on a contigency basis in a damages claim for negligence against your former solicitors. I think their insurers will cough up, rather than have this one litigated.

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        #18
        Unless the property is in London then I would be surprised if it was mortgageable even 5 years ago with that level of ground rent, and would be even harder to mortgage now.
        Solicitor most definitely should have warned you.

        Comment


          #19
          Originally posted by Rob1234 View Post
          [*]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.
          Ground rent of £500 for a flat worth £300k does not render the flat worthless. Getting a statutory lease extension for a peppercorn ground rent should be the way forward.

          Originally posted by Rob1234 View Post
          [*]£950 yearly ground rent for the garage which is included on the same lease but referred to separately. Originally £60 in 1975.
          You could consider abandoning the garage, as others have mentioned the ground rent is effectively the cost of renting it so that part of the lease is worthless.
          I would try to find out if it's worse than worthless, ie a potential liability. If you simply stop paying the garage ground rent, do you risk forfeiture of the entire lease or just the garage?

          Comment


            #20
            Many lenders now stipulate maximum ground rent of 0.1% of value so flat value will be severely impacted ( thus compounding the problem).
            Many lenders are concerned that ground rents over £250 (outside London) may cause the lease to constitute an "assured tenancy" and also refuse lending.
            The OP can't just pick and choose which part of his lease he adheres to, not paying the garage ground rent element would constitute a breach.

            Comment


              #21
              Originally posted by Section20z View Post
              Unless the property is in London then I would be surprised if it was mortgageable even 5 years ago with that level of ground rent, and would be even harder to mortgage now.
              Solicitor most definitely should have warned you.
              It's in greater London so that's probably why. If I remember correctly the only mention of ground rent from our solicitor was that there are provisions in the lease for it to increase. Nothing about being hard to mortgage/sell.

              I don't think any lenders had the now standard 0.1% rules in place at that point.

              Comment


                #22
                theta,

                I guess I would need to get legal advice on that. But from a laymans perspective reading the lease I think it would be risking forfeiture yes.

                Comment


                  #23
                  Yes indeed.
                  Another thought: can you split the lease into two? Then you should be able to sell the flat, and keep and rent out the garage (which is the problematic bit) without having the stamp duty penalty.

                  Comment


                    #24

                    It is clear that at the time you purchased the property you were aware of the size of the ground rent

                    It would be reasonable to assume that in formulating your offer for the property you did, or should have, taken that rent into account . It is therefore incorrect to say it is onerous. A recent auction a large property which appeared to need very substantial building work was sold for £120,000 BUT with a ground rent of £30,000 per annum linked to the RPI https://www.somersetlive.co.uk/news/...nor-17-4023548 The freeholder in this case is the local authority .This would equate to an overall acquisition costs of some £1 million. We would all be outraged if the new owner cropped up on this site complaining about the size of this rent - the price he paid reflects the burden of that rent. As a funding tool it could be useful in disposing of certain types of property


                    I believe the term “onerous” is where the ground rent provisions are not reflected in the price of the property - this could so easily be remedied by having the NPV of the rent shown next to the purchase price so purchasers consider the financial burden of paying the ground rent when making an offer. Onerous ground rents is the result not of the mischief of the freeholder (unless he influences the professional advisors of the incoming lessee) but of poor legal/valuation work

                    Lenders have imposed various caps and conditions on ground rents which appear to be a knee jerk reaction to the issue of 10 year doubling ground rent and may well come back to bite them if the expected economic recession turned into a deep depression and there were increased repossessions which could not be sold because of ground rent limits imposed by them. The LKP and other pressure groups have focused on ground rents and have failed to limit their attack so they argue that all ground rents are seen as the work of the devil.

                    Silly arguments that ground rent is for no service – a ground rent is indeed for no service and the lease makes that patently clear – it is a financial burden on the property that needs to be considered and taken into account prior to making an offer. They then argue a ground rent sensibly linked to the RPI is seen as onerous with comments such that if inflation increased by 2.5% per annum for 250 years a £350 ground rent would become some £168K per annum followed by a line of exclamations marks. Obviously, inflation running at that level could only do so if earnings used to pay for the goods and services (obviously) also rose by that sort of magnitude. If the government took away the annual inflation linking to the state pension there would be riots on the streets yet a landlord who seeks such an increase in the ground rent is seen as underhand.

                    The point is that leasehold needs reform but the ground rent issue is really a side show and as a result of their efforts (which they proudly acknowledge) lenders have changed their lending rules with regard to acceptable ground rent levels which of course has caused the problem you are now experiencing

                    In today’s climate with the cost of borrowing falling to records lows if you could borrow against your property £30k it would cost in interest terms around £450 per annum and offer a significant saving and enable you to dispose of the property

                    The government originally stated that it wanted to make enfranchisement /lease extensions cheaper - that appeared to change to “cost effective “ which I took to mean that savings are more likely to be achieved in reducing the legal and valuation fees a lessee has to pay to the landlord when making such a claim. This would appease the influential Great Estates and life companies that have purchased ground rents who would obviously throw enormous sums of money in challenging any changes to ground rent levels on the basis that it breaches their human rights.

                    With the collapse in interest rates to 0.1% and the outlook for long term rates to be very low indeed with a further possibility of negative interest rates we should not be surprised if there is a meaningful challenge to the deferment rate currently at 5% (Sportelli) and for capitalisation rates which for non-indexed linked rents can fall in the range of 5% to 7% . The risk-free rate when Spotelli was set was considered to be 2.25% and the Ogden rate used in personal injury claims set by the government stood at the time at 2.5%. Since then the Ogden rate went to MINUS 0.75% in Feb 2017 but has been revised (not because of changes in the outlook on interest rates but because of the investing attitude of those who receive such sums) to MINUS 0.25%.

                    Therefore, the government will find it very difficult indeed to wade in with simplistic formulas to value ground rents at anything more than the current capitalisation rate. The only crumb of comfort is that a lowering of capitalisation rates and deferment rates may render marriage value with the expensive valuation arguments almost irrelevant.

                    A useful tool to solve this problem would be if leaseholders or indeed their mortgagors could apply to have just the ground rent reduced to a peppercorn using a prescribed discount rate. This would not involve a valuation of the property and a prescribed deed (to be registered at the Land Registry) could be drafted to give effect to the reduction. The legal costs would be minimal. This would give comfort to lenders who would know that if they leant on a property and the ground rent levels causes a problem (if they ever had to take back possession of the property) they could apply to cancel the ground rent. The consequence being that their nervousness over ground rent levels and review patterns would be lifted. Holders of ground rents would have no grounds to argue that their human rights have been adversely affected.









                    Comment


                      #25
                      Originally posted by AndrewDod View Post

                      -- the government bankrolling just a tiny part of the real economy for just a few months is enough to cause devastation for a generation.
                      I think the young will in time become increasingly angry towards the generation of the baby boomers aged currently 60 plus .

                      The baby boomers have had:-
                      1. Student grants as opposed to loans
                      2. Jobs for life
                      3. Final salary scheme
                      4. Inflation paying off their mortgages
                      5. Ability to afford property when they were young and now blessed with equity buy up other properties putting them out of the reach of the young
                      6. Inheriting estates from their parents

                      So the young who have been at very low risk from Covid 19 ( unless they have underlying health issues) will have to bear the brunt of the job losses, pay increased taxes as a result of the governments action to help save the baby boomers

                      The baby boomers after the pandemic has passed will be pushing for improvements in health care and state pensions and be very touchy about any increases in inheritance tax and will be almost oblivious to the fact that it will be the young that will have to pay for their new demands

                      The baby boomers regard the young as obsessed with mobile phones cars and partying and will congratulate themselves for hard work they undertook to buy their home (well sitting in it and tarting it up whilst it rose in value) and making disparaging remarks that the young want it all now

                      The young do want the phone/cars/ clothes/holidays because they are the only targets they can possibly obtain

                      My generation (ie the baby boomers) will I suspect in time be seen as very selfish




                      Comment


                        #26
                        Originally posted by sgclacy View Post

                        I think the young will in time become increasingly angry towards the generation of the baby boomers aged currently 60 plus .
                        Agree with all that (and your ground rent post). However the leadership of our youth have lost the plot big-time too. They think that rioting, breaking stuff, sticking people to trains, worshipping fascist Marxists such as Corbyn and his ilk, generating creating a mode of political dialogue that aims to excluding and shame those who want a sensible debate, condoning and encouraging theft and thuggery, imagining that the whole world is London .... and so on ... is clever. Yes our generation had it good. The idiotic leaders of our youth will stick in the final knives.

                        Comment


                          #27
                          sgclacy,

                          Thanks for that very detailed post!

                          We were aware of the cost p/a of the ground rent yes. But not the impact it would have on future ability to sell or remortgage. At that point in time no one seemed to think it a major issue, and as such it certainly was not reflected in the price to the extent it would be today. If we'd paid a massively knock down price and could sell it on for one (without losing everything we've put into it) that would be absolutely fine with us. As far as I can tell the term onerous as used by lenders simply refers to ground rents over 0.1% of the value of a property, which is why I've used it here.

                          If we could borrow against the property we likely would. But we were first time buyers with 10% LTV and unfortunately the market stagnated almost immediately afterwards, meaning we haven't increased that as much as would be needed.

                          I should note also that I'm not asking 'how can I stop paying my ground rent for nothing'. I'm asking what my options are to get out of this poor situation legally, with the smallest financial impact to me. If one of those options happens to be new legislation then so be it.

                          Comment


                            #28
                            Originally posted by AndrewDod View Post

                            Agree with all that (and your ground rent post). However the leadership of our youth have lost the plot big-time too. They think that rioting, breaking stuff, sticking people to trains, worshipping fascist Marxists such as Corbyn and his ilk, generating creating a mode of political dialogue that aims to excluding and shame those who want a sensible debate, condoning and encouraging theft and thuggery, imagining that the whole world is London .... and so on ... is clever. Yes our generation had it good. The idiotic leaders of our youth will stick in the final knives.
                            I think there are ways to state this opinion without sounding like you're quoting the daily fail.

                            Comment


                              #29
                              Originally posted by Rob1234 View Post

                              I think there are ways to state this opinion without sounding like you're quoting the daily fail.
                              What a clever comment. I think the simple truths about the way our world is failing, and a mode of debate that relies on shutting people down and on ad-hominem does not alter by virtue of the entities that are supposedly "quoted".

                              What irony that your little missive illustrates the problem perfectly.

                              Comment


                                #30
                                Thanks!

                                I don't think you can state highly subjective opinions with no sourcing and claim them as 'simple truths'. *That* surely is an attempt at shutting down debate as you've indicated you won't even consider that your opinions could be erroneous. It's not credible and you shouldn't be surprised when called out on it. Look at the language in your post:

                                'Lost the plot' (tabloid phrasing)
                                'Worshipping fascist Marxists' (What on earth are fascist marxists? You could away with referring to Corbyn as a marxist I suspect but a fascist? You've just thrown another word on there to make it sound worse)
                                Idiotic leaders' (who are they? What official positions do they hold as leaders? Are they elected? Are they simply a tiny minority with loud voices on social media? Have they even done anything other than dare to be outspoken?)
                                'Corbyn and his ilk' (Corbyn is gone man! Let it go, he was for a time the leader of the second most popular party in the UK - He was always going to have supporters. Most probably just supported him because he wore the right colour, sadly.)
                                'Rioting, breaking stuff' (Has there ever been a generation that hasn't rioted and/or protested over something? I'm sure that that older generation had the same opinion of those doing it every single time throughout history. I think rioting is idiocy too by the way, protesting isn't my thing but it's a fundamental right).

                                I'm not saying you're wrong on all counts, but little of it is sensible debate. It's a thinly veiled attack on something that probably doesn't really even exist - It's a bogeyman invented by questionable media outlets to sell papers. There are idiots from all generations on both sides of the aisle, young and old. As an aside, even if you were correct in every assertion: People are the product of their environment for the most part. Who raised these youths? Who was in control of the environmental factors resulting in them being the way they are?

                                Anyway, I'd like to have this chat with you at the proper time and place, but this surely isn't it.

                                Comment

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