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Buying a property with weird ground rent.

(3 Posts)
ShannonG Mon 20-Mar-17 22:58:44

I’d really appreciate it if anyone with any kind of appropriate expertise can help me out so that I get my head around all this. I'm currently living abroad but I want to move back to the UK in the foreseeable future, so am planning to purchase a property in the UK. I've made a cash offer on a flat but have had advice from my solicitor that she is wary about the terms of the ground rent provisions, specifically that because the ground rent is tied to the RPI it could make the flat difficult to sell in the future due to the uncertainty of the actual future sums of money involved. Currently the ground rent is £250:00 PA, plus RPI % increase. I've enquired (via my solicitor);

This is from the vendors solicitor:
“Ground rent provisions Flat A, **************, London *********.
The ground rent terms are set out in the lease to your property at clause 1.8 which states as follows:-
“The Annual Rent” means the annual rent of £250 (two hundred and fifty pounds) per annum rising annually by the increase in the Retail Price Index for the preceding 12 months throughout the term”
Indexation provision is to protect both the landlord and the tenant. A ground rent that doubles every 25/33 years for example could become onerous to the tenant if inflation is very low indeed or we have deflation. The sole purpose of the provision is to keep the purchasing power of the rent consistent over the term of the lease.
The Council of Mortgage Lenders rules which sets out guidance as to what is acceptable terms for lending states the following on the subject of ground rents
5.14.9 We have no objection to a lease which contains provision for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable. If you consider any increase in the ground rent may materially affect the value of the property, you must report this to us (see part 2).
Readily established
The indexation provision is readily established as it is by reference to published data by the Office of National Statistics published as we all know monthly
Reasonable
Inflation has the effect of reducing the liability to the tenant at the expense of the landlord and deflation has the effect of increasing the liability to the tenant at the benefit to the landlord. I will agree to the rent falling in times of deflation
Nobody would take on paid employment for a fixed salary of 25/33 years with no adjustment should inflation arise and neither would anyone let a flat on a tenancy for say 99 with no ability to review the rent in times of inflation.
It is a wholly reasonable provision for the rent to maintain its purchasing power over the term of the lease
The clause as currently drafted refers to any upward movement in the RPI on reflection this should be excluded and if the RPI falls then the rent should also fall. We would be prepared to enter into a deed of variation to correct that aspect of the ground rent clause for a premium of £750 which includes our costs of preparing the deed of variation.
The ground rent terms to remain the same and the term increased to 110 years i.e. an increase of 17.5 years for a premium of £5,000 and there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.
We would be prepared to increase the term to 110 years and have the rent fixed at £300 per annum doubling every 25 years for a premium £9,000 again there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.
We trust we have supplied all the information required to further your sale.

I hope this is helpful to you.”

Anyway- does the above correspondence from the vendor’s agent seem reasonable? I really like the flat but don't want hassle in the future- or now really.

Advice?

SillySongsWithLarry Tue 21-Mar-17 06:42:25

I wouldn't touch it with a barge pole. The ground rent is expensive, and will go up and up. The extensions are expensive and no mention of a statutory 90 year extension at a peppercorn ground rent. And there is no mention of a service charge or insurance costs, which again will be pricey.

The script reads as though it is tugging at the heartstrings. A contract needs to be factual and to the point, not emphasising that standard leases are unfair.

ShannonG Tue 21-Mar-17 18:49:34

Silly Songs With Larry- thank you so very much for your help, I really, really appreciate it. I've found this in my inbox if anyone can help me decipher what it means...

"We are able to offer the following options.


The ground rent terms to remain the same and the term increased to 110 years i.e. an increase of 17.5 years for a premium of £5,000 and there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.

We would be prepared to increase the term to 110 years and have the rent fixed at £300 per annum doubling every 25 years for a premium £9,000 again there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.

We trust we have supplied all the information required to further your sale."

It seems that the lease can be extended to a more reasonable length of time, but at quite a price. The property is in good repair at the present.

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