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Issues with the ground rent on some leasehold properties

Ground rent refers to a payment made to a freeholder by the majority of those who own leasehold property in England and Wales. The term “ground rent” was originally intended to reflect only the value of the ground that was being let, ignoring any buildings on it. However, the term is now often used to reflect a low or nominal rent, usually paid under a long lease that was provided in return for a premium.

How much is the ground rent?

For owners of leasehold property, the terms of the lease will determine how much ground rent is payable and when it is due. In some circumstances, the ground rent will be payable in one annual instalment whilst some other leases may require the ground rent to be paid at more regular intervals.

The ground rent payable is either fixed or escalating. An escalating ground rent will increase over the term of the lease. The terms of the lease will set out when the increases will take effect and the sum by which the ground rent will increase. A fixed ground rent is when the sum payable remains the same for the duration of the lease.

In some circumstances, the ground rent clause in the lease is difficult to understand such as when the ground rent does not increase by a specified amount but rather by some other measure. Examples of such measures could be the rentable value of the property or the consumer or retail price index. These measures are unclear and could result in large increases in the ground rent payable.

What you should have been told

Prior to agreeing to purchase a leasehold property, the lawyer acting for the buyer should inform the client about the crucial terms within the lease. This is often done so via a “Report on Title”. The report should be sent to the client before they commit to purchase the property i.e. prior to the exchange of contracts.

Within the Report on Title, it should detail the ground rent payable in addition to how and when it will increase. In the event that the ground rent is particularly high or is to escalate quickly, the client should be put on notice that it may affect the value of the property.

Higher ground rents could cause major issues when trying to sell the property. Therefore, the lawyer acting for the buyer should have warned both the client and lender (if purchasing with a mortgage secured on the property) if the terms of the lease are unusual and/or may negatively impact on the value of the leasehold property.

Professional negligence claims

If the lawyer acting for the buyer does not provide sufficient warning about an unusual or onerous ground rent clause (in the original lease or later added by a deed of variation), it could result in the buyer purchasing a property which is worth less than the price paid. Should such an eventuality arise, the client may have a potential professional negligence claim against their lawyer for the loss caused by the failure to warn about the onerous ground rent clause or any other unreasonable term in the lease (which affects the property value).

Given there are time limits to bring a professional negligence claim, it is imperative that legal advice is sought immediately after a problem with the lease/deed of variation has been identified.

If you feel that you received inadequate advice from your lawyer regarding a ground rent clause when purchasing your property please get in touch on 0800 374 514, or to request a call back from one of our experts, visit: