Ground Rent on Leasehold Flat

[Scottandcharlene]

We are helping our daughter to buy her first home, and she has had an offer accepted on a lovely flat. We have been on a very steep learning curve about leaseholds and are aware of the pitfalls involved, unfortunately in the very expensive city my daughter works in she is limited to flats which are pretty much all leasehold and to be honest there’s even a shortage of those. We got a chance to see the lease and noticed that the ground rent will increase every 27 years. The lease commenced in 2000 and the current ground rent is £150 but will be increasing to £300 in 2028. The amount isn’t a concern but I am aware of the issue of ground rents above £250 meaning mortgage companies are reluctant to lend on them. My daughter has a mortgage approval but I’m worried about when she tries to sell the flat in the future. We will be asking the seller to get a Deed of Variation to set the ground rent below £250 but have no idea how they will react to this. Can anyone offer any experience of this situation? I know the alternative would be to ask for a lease extension which will automatically set the ground rent to a peppercorn rare but I guess this will take longer. It’s a very straightforward purchase apart from this issue. Thanks in advance.

This issue came up with the flat my buyer is selling. The mortgage lender needed indemnity insurance in order to proceed but this doesn’t protect the buyer. The freeholder does not have to agree to a deed of variation but they have to agree to a statutory lease extension. I think you can only do that after living there for 2 years. I would hope that freeholders will soon realise that if they need to agree to vary the ground rent increases to make sure the flat is attractive to buyers.

What does her conveyancer say? It really varies by freeholder.

How does the ground rent increase?

Thanks for the replies, @Karmatime it doesn’t seem to have been a problem for her mortgage company but we are more concerned about when she comes to sell it and as you say anyone owning a freehold is going to have to face this issue at some point. It also seems that it will probably be dealt with by the new legislation coming on leaseholds, but that could be some years away. @MinnieMountain she hasn’t spoken to the conveyancer yet about this as she only had her mortgage confirmed today so hadn’t progressed very far but will get on to it this week. The ground rent doubles every 27 years starting at £150.

You are right to be concerned. I heard a program on R4 about this issue and the difficulty selling-on. It's a buyer's market so get your dd to bargain hard.

We will see what the seller says @LoveMAFS it might come as a nasty surprise to them.

You definitely need a deed of variation if it doubles. Some lenders would accept it every 27 years (does hers? They won’t know about the ground rent yet) but most don’t.

The Solicitor should be dealing with this on your behalf. Your DD needs to speak to them asap.

Hi OP, I was a conveyancer for 10 years and deeds of variation are now very common with leasehold properties with regard to the ground rent. I never had a LL refuse to agree to one if that can reassure you a little. It usually takes a fair bit longer though to get the purchase through though because the LL doesn’t have the same urgency to respond to requests quickly as the seller does. However, this is not a new issue and large blocks of leasehold properties that have well established management companies usually have a precedent DOV they prefer to use and will be provided at a cost (payable by the seller) which can make the process a lot quicker. I wouldn’t worry about it and leave it for your daughters solicitor to negotiate with the other side.

You can buy a lease extension. Which has the double benefits of 1, mortgage companies don't like it if lease falls below 80 years and 2, after extension you no longer pay ground rent

Thanks again for such helpful replies. @Nosleepforthismum your experience is reassuring, thank you. I do agree that the lease extension is a good solution @nicknamehelp but I am concerned this will take longer. My daughter will definitely be talking to her solicitor urgently but I thought asking for real life experiences of the situation is useful for us.

Only a statutory lease extension guarantees a peppercorn rent. The seller would have to agree to start the process then pass the benefit over. The legal work is expensive as they are fiddly.

The ground rent reforms last year state that the rent only HAS to be a peppercorn for the term being added. Often freeholders knock the whole ground rent down to a peppercorn but it’s not guaranteed.

What happened ?
I'm going through a similar process
We got a deed of variation but at the last minute the mortgage lender changed their minds and weren't happy
So a lease extension is the next option
But I have no idea about this so searching Mumsnet for any experience ...

The problem is that mortgage lenders often agree a mortgage in principle and then at the last minute just before exchange, look more closely at the lease terms and reject it then.

If a deed of variation or a lease extension is agreed which means the ground rent won’t exceed £250 or increase above 0.1% of the value, it should be acceptable to lenders.

I’d imagine OPs DD didn’t proceed with this purchase.

My lender agree the terms of the deed of variation.
It took two months to get it and then the day it came through they changed their minds 😭
So now my options are a lease extension or to pull out
And I just don't know what to do!

We pulled out. Our vendor didn’t seem to accept the seriousness of the issue. The lease owners would only offer a deed of variation which would give extra notice in the event of ground rent not being paid, they refused to lower the ground rent. The vendor offered to start the lease extension process but was only offering a small price reduction so we pulled out. We were very upset at the time but feel nothing but relief now. The estate agent was furious that the vendor hadn’t told them about the ground rent issue and has refused to re market the flat. With so little on the market we are waiting for things to improve so our daughter is renting for the time being.

Thank you!
I'm still really unsure what to do!
Good luck to your daughter in finding somewhere :)

For anyone reading this in the future
I also pulled out of the purchase and am looking to buy freehold now .
Leasehold is Too much stress and drama for me ..

Hi All,

Ive just put an offer in on a flat in Manchester, i’m seeing a lot around ground rent exceeding the £250 mark- do I need to be worried? the ground rent is £350 and the service charge is £1178. Long lease at 979 years.

I’ve asked the agent regarding the review period of the ground rent and she will find out for me.

Any advise welcome please ☺️

Thanks!!

Last year my buyers were selling a flat in Manchester with ground rent of £250 which increased every 20 years. The mortgage lender of their buyer wanted a deed of variation but settled for an indemnity policy. It held everything up for ages. I think it could cause problems with your mortgage lender.

This is what i’ve been reading! The vendor wants to complete in 8 weeks as well 😂 no chance! I think I am going to pull out, i’m gutted! Really loved the flat, but the ground rent over £250 seems like a big issue. The estate agent is coming back to me on Monday regarding the review period of the ground rent.