In recent news there has been an explosion of news stories over Ground Rent’s payable on leasehold properties. Most national newspapers and even the BBC highlighted horror stories of crippling leases where the Ground Rent payable to the Landlord extortionately increases over time. Catching the attention of the Communities Secretary, Sajid Javid exclaimed: “"Enough is enough. These practices are unjust, unnecessary and need to stop."

So what is the issue with Ground Rent and where is the law potentially about to take us?

Ground rent

Ground rent is a fee in which the owner of a building has to pay to the owner of the land it’s built on, if stipulated in the lease. For Leasehold Properties, this generally comes in the nature of a flat within a building, but there becomingly increasing common, especially in Northern England, is the concept of the Leasehold House on a new build estate.

For of home owners across the UK it has been tolerated as ‘part and parcel’ of getting on the housing ladder. Generally with leasehold flats the ground rent payable isn’t an extortionate amount of money. However, over the past few years, ground rents are becoming increasingly more of a problem to home owners, especially with hidden clauses within lease agreements regarding future increases. It is essential therefore that conveyancers are offering the correct information to prospective buyers.

The Ground Rent Trap

The reason for the nationwide news coverage is because it is coming to light that more and more developers have been inserting clauses in their leases that increases the ground rent after a certain amount of years. Using ‘unclear’ language lessees have found themselves with ground rent that doubles every five to 10 years, and some finding on obtaining a lease extension found that the increasing ground rent provision was back dated to the original grant date of the lease.

A lot of lessees were given false promises. Especially in new build developments. Many buyers were told they would be able to buy their freehold after two years for £2000 to £4000. However, after one and half years, a lot of people were informed that their freehold had been sold on to another company and would now cost an unaffordable amount to buy and therefore trapping them within the lease. Of course then, prospective home buyers were put off and leaving some properties virtually unsellable.

Furthermore most UK Lender are now unwilling to lend on properties with a Ground Rent that starts of more than £250 for outside London properties, and that increases within the first 10 years. Prospective purchasers are finding that even if they are willing to take on the onerous Ground Rent provisions, that their lender will not.

What is the government doing to help?

There are around 1.2 million houses currently leasehold, so is important the government steps in and protects home owners. The housing market is important to the UK economy and it is in everyone’s interest to ensure it is working properly for all parties involved.

In England, the government is actively working towards banning leaseholds on new builds and also capping these extortionate ground rents some home owners are currently being forced to pay. There will be a period of public consultation before any solid decisions are made, ensuring any decision made will suit the people involved.

The importance of a good conveyancer

For the time being however, Ground Rents are certainly set to stay and almost certainly won’t disappear from a standard Leasehold flat. Therefore it is vital that when you are looking to purchase leasehold property, be it a flat or a leasehold house, that your Conveyancer fully explains the nature of the Ground Rent provisions in the lease to you. Unreasonably high Ground Rents should be questioned, and referred back to Lenders for approvals before proceeding.

Unfortunately Developers tend to negotiate little, and with not enough housing stock, and an abundance of buyers trying to get onto the market, clauses such as the Ground Rent are heavily weighted in favour of the Developer! Still with UK Lenders now refusing to lend, and the Government looking to take action, hopefully soon extortionate Ground Rents will be a thing of the past. And not too soon.

If you require any further information about Ground Rents, or any other Property legal matters, then please contact Lucy Hubert and team at Dean Wilson LLP on 01273 249200.