Millions of people in this country own their homes on a leasehold basis and therefore pay an annual ground rent. On some occasions, regular and steep increases in the ground rent can have a significant impact upon both leaseholders and lenders.
In most circumstances, a ground rent will be a fixed rate payable per annum. This charge in the main does not exceed circa £250.00 per annum outside London and circa £1000.00 in London. However, things started to change when landlords and developers started granting new long term residential leases reserving grounds rents that double every 10 years or 25 years etc. The result of this was that later on, the ground rent reached staggering amounts. An example of this is a 150 year lease which had the initial ground rent is set at £200.00 per annum. The ground rent under the lease doubles on a compound basis every 10 years. Towards the end of the lease, the ground rent would be millions of pounds and such a situation highlights the issue with an escalating ground rent clause.
In terms of options to rectify a lease with an escalating ground rent clause, a landlord and leaseholder could agree to vary the lease, so as the escalating ground rent provisions are removed. However, a landlord does not have to agree to this and if it does, it may charge the leaseholder a substantial premium as well requiring the leaseholder to meet the landlord’s legal charges for the putting in place the variation. As an alternative, a leaseholder could look to use the statutory procedure available to extend the term of its lease, so as ground rent no longer becomes payable under the new extended lease. However, it is important to note that the landlord is entitled to compensation from the leaseholder for having to grant an extended lease that contains no proper ground rent provisions. The procedure also comes with additional financial cost to the leaseholder.
A further option open to a leaseholder is to apply pressure on the landlord/developer to argue that the escalating ground rent clause is unfair, unreasonable and unenforceable pursuant to consumer protection laws. However, such an approach does not come without risk because whether the clause is unfair depends on the wording of it and the circumstances of the transaction by which the leaseholder purchased the lease.
Yet another option to consider is whether to sue the buyer’s conveyancer / solicitor whom acted in the purchase of the leasehold and failed to advise on the existence / effect of an escalating ground rent clause in the proposed lease. However, there are strict time limits by which legal proceedings must be commenced and if such action was considered, legal advice should always be sought on an urgent basis.
If you feel that you received inadequate advice from your lawyer regarding a ground rent clause when purchasing your property then please contact our expert team now on 0800 374 514.
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