Ground rent doubling every 10 years

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Ground rent doubling every 10 years

    Hello....please can anyone tell me whether it is common for leases for new build properties to include a ground rent review clause whereby, on each rent review date (every 10 years) the ground rent is increased to double the rent before the relevant rent review date?

    From my calculations, based on rent doubling every 10 years, looks like one will have to pay almost £2.5m per annum as ground rent during the last 10 years before the 150 years lease expire !!!! Is this real???

    Thank you very much for your valuable advice/comments.

    Lease years Ground rent payable per annum
    1 to 10 yrs £150
    11 to 20 yrs £300
    21 to 30 yrs £600
    31 to 40 yrs £1,200
    41 to 50 yrs £2,400
    51 to 60 yrs £4,800
    61 to 70 yrs £9,600
    71 to 80 yrs £19,200
    81 to 90 yrs £38,400
    91 to 100 yrs £76,800
    101 to 110 yrs £153,600
    111 to 120 yrs £307,200
    121 to 130 yrs £614,400
    131 to 140 yrs £1,228,800
    141 to 150 yrs £2,457,600

    #2
    The lease would be almost unmortageable.

    If you are the owner of the flat and your solicitor did not advise you of this you may have a claim against the solicitor for failing to draw to your attention such a liabilty.

    You can of course apply for an extentsion under the lease once you have owned the flat for two years, not because the term is a problem but it would enable you to negotiate a premium whereby the ground rent is extinguished.

    As to the premium it would depend on what discount rate is used for the income. It would be argued by the landlord that such a rental stream is most attractive and argue that the discount rate should be perhaps 6% you might persuade the tribunal to adopt 7%. As you will see a small diff in the rate effects the premium significantly

    6.00% = £40.1K
    6.25% = £32.2K
    6.50% = £26.2K
    6.75% = £21.4K
    7.00% = £17.8K
    7.25%= £14.9K

    Comment


      #3
      sandras: Does the business name 'Blue Dolphin' ring any bells? Was it mentioned on any deeds or documents concerning your property?
      JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
      1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
      2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
      3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
      4. *- Contact info: click on my name (blue-highlight link).

      Comment


        #4
        Are you leaseholder of a Taylor Wimpey flat ?

        http://es.homesandproperty.co.uk/groundrent.html

        Better contact your MP to draw attention to your ground rent problem and ask why the Government is unwilling to change to Commonhold?
        Last edited by Gordon999; 03-07-2009, 11:27 AM. Reason: spelling

        Comment


          #5
          Originally posted by Gordon999 View Post
          Are you leaseholder of a Taylor Wimpey flat ?

          http://es.homesandproperty.co.uk/groundrent.html

          Better contact your MP to draw attention to your ground rent problem and ask why the Government is unwilling to change to Commonhold?
          1. HM Government changes its mind a lot but cannot lawfully change the law.
          2. Parliament (with Royal Assent) can, however.
          3. The 2002 Act already allows the bonkers Commonhold system to be adopted by:
          a. a new development's builder/vendor; or
          b. the collective leaseholders who own- jointly- the freehold reversion. The absence of any meaningful shift speaks for itself!
          See http://www.landlordzone.co.uk/forums...ght=commonhold for official statistics.
          JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
          1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
          2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
          3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
          4. *- Contact info: click on my name (blue-highlight link).

          Comment


            #6
            I know this will annoy many contributors, but is the cost of living meant to double every ten years?

            By doubling the ground rent the actual monetary value of the rent to the Landlord remains the same relative value?

            As property values increase by more than double every ten years the developer is only reflecting your increased values in their rent charge.

            The rent on the leasehold flats in my building is £25 per year, this was a reasonable sum in 1980 but hardly worth bothering to collect in 2009.

            PS. Not sure but someone (an Economist) will either discredit this theory or give arguments to support it.

            Comment


              #7
              I'm no expert, but, assuming inflation runs (at an average) of about 2% per year for the next 150 years (very hard to say) then the total value, in today's money of the ground rent collected is £3,602,517. That's in today's money!

              The total rent collected is £761,607,750.

              I've no idea if such a lease is genuine, but as sglacy says, it would be practically worthless.

              Comment


                #8
                The safest thing for both parties is to have an indexed ground rent linked to the RPI or to the increase in average earnings

                This ensures that the freeholder income is not erroded by inflation and the lessee can be certain that the income never gets out of hand. This could happen if we have a prolonged period of defaltion a lease that doubles the income every 25 years could be a significant burden

                Comment


                  #9
                  Originally posted by thevaliant
                  I'm no expert, but, assuming inflation runs (at an average) of about 2% per year for the next 150 years (very hard to say) then the total value, in today's money of the ground rent collected is £3,602,517. That's in today's money!

                  The total rent collected is £761,607,750.
                  You had fun adding that all up, didn't you.

                  Comment


                    #10
                    7% compounding for 10 years almost halves the value of money

                    and 10% for 7 years also does the same as a crude rule of thumb

                    Comment


                      #11
                      Originally posted by thevaliant View Post
                      I'm no expert, but, assuming inflation runs (at an average) of about 2% per year for the next 150 years (very hard to say) then the total value, in today's money of the ground rent collected is £3,602,517. That's in today's money!

                      The total rent collected is £761,607,750.

                      I've no idea if such a lease is genuine, but as sglacy says, it would be practically worthless.
                      I think you may need to revisit your calculations you say that the total rent collected over thr 150 years is

                      1 to 10 yrs £150
                      11 to 20 yrs £300
                      21 to 30 yrs £600
                      31 to 40 yrs £1,200
                      41 to 50 yrs £2,400
                      51 to 60 yrs £4,800
                      61 to 70 yrs £9,600
                      71 to 80 yrs £19,200
                      81 to 90 yrs £38,400
                      91 to 100 yrs £76,800
                      101 to 110 yrs £153,600
                      111 to 120 yrs £307,200
                      121 to 130 yrs £614,400
                      131 to 140 yrs £1,228,800
                      141 to 150 yrs £2,457,600

                      Simply add 150+ 300+ 600+1200....+2457600 and take the result and times by 10


                      £4,915,050 X 10 = 49,150,500

                      If inflation was 2% and you demanded no more than to be protected from inflation. In otherwords you do not adjust the discount rate for your cost of capital and risk is ignored then the NPV of that income stream is £3,531,879= £3,532,000

                      Taylor Woodrow would be out of the Sh1t overnight

                      Comment


                        #12
                        Originally posted by sgclacy View Post
                        Simply add 150+ 300+ 600+1200....+2457600 and take the result and times by 10

                        £4,915,050 X 10 = 49,150,500
                        Yes. You are right. Sitting here with Excel open and compounding the rent even more.

                        But I think the point stands regarding time value of money.

                        On a practical note, I wonder if the freeholder realises what they have done by creating such a lease.... (I assume they have) because it is quite simply evil.

                        Comment


                          #13
                          Not evil but greedy.
                          JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                          1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                          2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                          3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                          4. *- Contact info: click on my name (blue-highlight link).

                          Comment

                          Latest Activity

                          Collapse

                          Working...
                          X