Lease extension triggers doubling ground rent change

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    Lease extension triggers doubling ground rent change

    Has anyone had dealing with doubling ground rents?
    i have just asked for a quote for a lease extension and they are proposing new ground rent terms of a doubling ground rent every 25 years. My commercial guy has said some lenders don't like these which may reduce the value of the property of i ever needed to sell. Not planning on ever selling but i need the value to stay as high as possible hence doing the lease extension.

    second question, Has anyone ever contested these implied terms on a lease extension? Maybe got them removed? Is this even possible?

    #2
    If you ask for a statutory 90 years lease extension , the annual ground rent is a peppercorn .

    Comment


      #3
      Originally posted by SouthernDave View Post
      Has anyone had dealing with doubling ground rents?
      second question, Has anyone ever contested these implied terms on a lease extension? Maybe got them removed? Is this even possible?
      You are clearly using the informal route and can thus negotiate whatever terms you like.
      freeholder will want to retain some ground rent but avoid the doubling clause, maybe suggest small fixed rises every ten years.

      Comment


        #4
        Doubling every 25 years is simply a guess as to what inflation may be, if inflation of the current levels ( about 6% ) was to continue the real value of the rent would fall by 77% and doubling would not address the enormous damage done by inflation. However, if inflation was less than 2.81% per annum then the real value of the rent would increase on the 25th anniversary

        To avoid these uncertainties, it might be better to seek a term for a ground rent that matches inflation

        In a non-statutory lease extension, all terms can be negotiated

        Comment


          #5
          How many years left on your lease ? If you are still above 81 years left on the lease, you could wait until next year to see if the government reforms help to reduce the cost of lease extension .

          Comment


            #6
            Theres only about 67 years left on the lease. Spoke to my commercial guy today, he said freeholder like doubling ground rent provisions as it increases the value of the freehold. I am going to try and negotiate a different provision

            Comment


              #7
              serve a claim under which youll pay now ground rent and subsequently offer to accept a £100 pa ground rent. It wont hurt you or affect the value of your long lease,
              If your flat has 67 years only left ignoring value of ground rent (if any) the lease extension premium would be 10% of the extended value assuming the flat was in fairly decent repair

              Comment


                #8
                Originally posted by L4NDLORD View Post
                serve a claim under which youll pay now ground rent and subsequently offer to accept a £100 pa ground rent. It wont hurt you or affect the value of your long lease,
                Since no ground rent is payable if you follow the statutory route why not just serve notice?

                Comment


                  #9
                  Because the respondent will accept a lower premium if the applicant agrees to pay a ground rent. Typically around 20 x a static ground rent. Statutory lease extensions have one big draw back and that is the s61 rights reserved to the respondent. They can put off some buyers. Most people couldnt give a monkeys, but it is a drawback

                  Comment


                    #10
                    Originally posted by L4NDLORD View Post
                    serve a claim under which youll pay now ground rent and subsequently offer to accept a £100 pa ground rent. It wont hurt you or affect the value of your long lease,
                    If your flat has 67 years only left ignoring value of ground rent (if any) the lease extension premium would be 10% of the extended value assuming the flat was in fairly decent repair
                    But it will make him liable for freeholders costs, which for a low value extension are often disproportionate.
                    Always exhaust Iinformal negotiations first.

                    Comment


                      #11
                      Originally posted by Lawcruncher View Post

                      Since no ground rent is payable if you follow the statutory route why not just serve notice?
                      You do not of course actually have to serve the notice, just threaten to. If it goes through the statutory process the landlord will not be better off, only his advisers.

                      Comment


                        #12
                        Originally posted by Section20z View Post

                        But it will make him liable for freeholders costs, which for a low value extension are often disproportionate.
                        Always exhaust Iinformal negotiations first.
                        I could not agree more - the landlords costs can be if the order of £2000 plus VAT = £2,400 and the ritual dance that follows makes the lessees own costs increase - so easily £5,000 can be incurred by the lessee in extending a lease perhaps at just over 80 years - the valuation is very straight forward where the term is plus 80 years and the deed of surrender and regrant is of course a word processed document taking perhaps 15-20 minutes to populate and amend

                        If the government wants to make easier quicker and cheaper for lessees to extend their leases it needs to consider making the landlord responsible for his own costs - as a landlord I would accept that if I acquired my interest post 1993 I always knew that this possible windfall would becoming my way and I do not need counselling to get over the distress I receive when a formal section 42 or section 14 claim arrives - if the landlord had to bear his own costs I am sure negotiations and valuations would be conducted much quicker and with more realistic expectations

                        i know of a firm of solicitors when acting for landlords will alway serve any counter notice on the basis that it is served without prejudice to the claim that the initial notice served by the lessee was not valid - this introduces into the ritual dance a further layer of complexity which of course benefits the professional advisors acting for both parties

                        my record for doing a lease extension from the time I took the enquiry over the phone from the prospective lessee to completing the transaction with the money hitting my bank account is 44 hours - the lessee was due to complete on the Friday and rang me on Wednesday afternoon to enquire what my terms were - I drafted the deed that evening sent it over by email - I had a chat with the solicitor the following day tidied up a couple of minor points then executed it and sent it by guaranteed delivery to that solicitor and the solicitor sent the funds to my solicitor to deal with ID rules and my solicitor immediately sent the funds to me - only legal costs the lessee paid was £100 plus VAT for my solicitor to receive the funds and agreeing to have that firms details put on the form AP1 -

                        Comment


                          #13
                          it is quite true that the professionals unnecessarily make a meal of this type of work. One of the planks of my submission to Professor Hophins was that the landlord's costs should be limited to 500 pounds. I also suggested that relativity be standardised nationally (accepting that there would be winners and losers in so doing- but that its about right following the Zucconi decision) and a special unit of the land registry be set up just to deal with simplified lease extensions where the only items changed are the term, the rent redacted, and the notice fee modernised. This idea has obviously not found favour with the army of tweedy surveyors and solicitors who ply the choppy waters of lessees who think they can acquire rights for absurdly low amounts and greedy landlords who don't pitch in with realistic counter offers. One of the faults with our existing system is that lessees' are advised to serve their claims with entry figures that are too low, typically at 50-60% of the proper figure and there is no penalty to do so. The result is that landlords will serve counternotices which are proportionally too high and on goes the merry dance. That's my two bitsworth

                          Comment


                            #14
                            I agree with the above totally - there is no benefit to the professional classes to see the process simplified - specialist who set up to help lessees will state never never accept an informal lease extension really want to make a meal of it whilst at the same time banging the drum wanting reform - turkeys campaigning for Christmas four times a year spring to mind

                            Valuation of an 80 year plus lease extension is not rocket science and the deed of surrender and regrant is a straight forward word processed document - which could so easily be a prescribed form that goes off to the land registry . The deed can be drafted so that it picks up all the info from the prescribed clauses so all that has to be done is to populate those prescribed clauses -that’s what I do and I get the deed out in about 10 minutes

                            Many landlords want to get the deal done quickly and reinvest the proceeds (which on a statutory claim they can roll over the gain for CGT purposes) the ritual dance spanning several months does not get them any more money as the valuation date is frozen on service of the notice of claim

                            as said earlier a lessee can end up paying fees if around £5000 on a lease extension claim and if they knew what was involved would be surprised boardering on angry

                            Comment


                              #15
                              The game of making low offers first can be dealt with by pendulum arbitration. That means the arbitrator has to choose the offer or counteroffer which ever is closer to reality. Then both sides have to be moderate.

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