Lease / ground rent issues

[heatherkay333]

We in the process of buying our first flat in SE London and our solicitor is going through the paperwork - they have sent the lease which shows the ground rent increasing (almost double ) every 25 years. This is a potential problem for the lender and for us when selling it in the future. Have you come across this before? Have you been able to add a variation to the lease (which seems to cost a lot) and then re-negotiate on the selling price? We are just trying to look at our options and hopefully not regret moving if this could cause issue for the future.

It it could. The system is terrible. Your best bet would be to use the statutory route to increase the amount of years which then gives you 0 groundrent. But you’d need to wait two years so you could get seller to start off process. OR if 50% plus of lessees in the building agree, buy the freehold.

but generally, just avoid leasehold as they’re a money pit. Lots of talk regarding better legislation but it hasn’t materialised.

I have a leasehold but it’s for 999 years and stays the same. I would not buy a doubling one.

Extremely difficult to avoid Leasehold with London flats.

Have it varied or walk away. Get the estate agent to talk to the seller. The deed of variation can be done alongside your purchase. Whether or not the freeholder agrees depends on the individual company.

I have a lease that doubles every 33 years. So £200, £400, £800. I plan to extend and get rid of the ground rent element but even if I didn't, I wouldn't live for long enough to see it rise to £800.

It's not uncommon at all, but mostly with modern developments (last 20 years or so) where this type of clause was put in to fleece the future leaseholders. That's why the Government changed the law to stop the practice (but does not apply retrospectively).

A deed of variation would need to negotiated by the current leaseholder, not you as would-be buyer. They will have to pay the legal costs of the freeholder and also their own, plus negotiate a 'premium' to compensate for loss of future ground rent (and even go to a Tribunal if they can't agree this 'premium').

If its a problem for your lender then it's probably 'game over' on this particular flat due to a) the likelihood of the current leaseholder being willing to seek a variation and b) the time it could take.

However, if your lender will still go ahead without the deed of variation then, yes, you probably do need to consider what discount you should try and negotiate.

Depending on the level of ground rent (that is to double) and term remaining on the lease, the 'premium' for a deed of variation (e.g. to set a future peppercorn ground rent) could easily be in the high thousands or tens of thousands, plus your and the freeholders legal costs (you would pay both).

Whether the vendor agrees to 'any discount' is of course another matter.

Thank you all - so helpful. I think we will hope that the deed of variation is approved first and if so, we will say that it needs to be sorted by the vendor or we will have to walk away. Then if we do buy it, we will try to to become the freeholders if possible after 2 years. Our other concern is the service charge as well - if that will increase randomly. Everything seems quite secretive and scammy unfortunately in this process, it’s very stressful rather than exciting buying your first place - hoping it will change on older properties soon enough.

Hi, we had a 15 year doubling clause on ours and received a letter last year from the freeholder offering to remove it and covered the legal costs up to a certain amount. I believe it was the outcome of a new government legislation but I can’t remember the exact details. They amended it so the ground rent would now stay the same for the whole term of the lease which was 250 years. We never had an issues with service charges - I do think living in London it is hard to get on to the ladder without buying a leasehold flat as a FTB

To be honest I don't see why doubling over that timescale (25 years) is seen as so bad. Over 15 years or 10 years it starts to look quite a bit more dodgy.

Ultimately it probably isn't that much more than the rate of inflation (complete guess there*).

But mortgage lenders don't seem to like it that much. An opportunity there for cash buyers maybe.

*in fact I guess inflation @ 5% devalues your money by 50% in about 15 years.

Thanks everyone - the ground rent in this current lease will double in the year 2037 (from £275 to £550) which is far enough away but we think will make it harder for us to sell. The vendor has said no to adding a deed of variation in which case we are considering renegotiating our offer as we will more than likely need to pay for this in the future. If we do walk away, we feel very strongly that they won’t get an offer as high as ours so we hope they will consider our new offer. Do you agree? Thank you for your help with this.

To be honest I don't think it will stop people finding a mortgage. It's not currently a high ground rate and doubling every 25 years isn't that quick. What did they tell you about the ground rent before you offered? Maybe try knocking £5k off the price but it will depend on what other stuff is selling for.

Thank you for your reply - so both the vendor and agent told us the ground rent is £275 and won’t increase. Also in documentation. But that is not the case according to the lease. We could try at least £5k off - I guess worst case is when we go to sell later, we either include the deed of variation price or take a lower amount with the new buyer who will need to change it. Perhaps it will also be done away with by then? Feels very up in the air with what could happen.

Just to say that other properties are selling for much less in this area / being taken off the market. That’s why we thought we would have a fair shot at re-negotiating because if they have to put it back on the market, they would probably get a lot less for it compared to our offer.