Ground rent concerns? Things to consider for tenants

Year Published: 2018

There has been a lot of concern recently, in the media, with regards to the effect of clauses in people’s leases that relate to the payment of ground rent. I deal with leasehold flats and houses on a daily basis and I am increasingly noticing that a lot of leases carry onerous clauses that affect the payment of ground rent.

If you are lucky, then the ground rent will be fixed for the entire term of your lease and therefore your landlord can only make claim for this fixed amount every year. However, there has been an increase in recent years of leases containing clauses that either allow for the rent to increase in set amounts every 10 or 25 years, for example, or there is a clause providing a mathematical equation allowing for the rent to be increased along with the Retail Price Index.

Ground rent concerns for tenants are:

  1. That eventually, the ground rent payment could become unaffordable and therefore the property becomes unmarketable and unmortgagable as many mortgage lenders will not accept the high cost of the ground rent and therefore will not lend to potential buyers.
  2. The ground rent cost will rise to a level where the landlord has extra powers of possession under the Housing Act 1988. If the rent rises to above £1,000 in London and £250 in the rest of England and Wales then, if the rent is in arrears for 3 months, the landlord can seek a possession order for the property. This only applied to leases granted after 1st April 1990.

The current Government have issued a consultation paper for properties in England which seeks to alter the law so that the increase in ground rent can only be raised to a certain limit and to also remove the right for andlords to seek the above possession order.

These proposals have not yet been made into law and so for the meantime tenants will have to check their leases and deal with the potential extra legal costs of altering leases to keep them marketable to potential buyers and mortgage lenders.

Many new build properties are sold as leasehold properties and the unfair and unreasonable ground rent costs have been highlighted due to developers wanting to charge excessive ground rent for no reason. The good news is that some developers are willing to change the ground rent clauses before the lease is granted and in some cases, where the lease has already been sold on to the second owner of the property. It is worth raising this with the sales office if you are planning to buy a new build property to find out, before you are financially committed, what stance the developer will take on this issue.

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