Compensation for ground rent negligence advice
Ground rents are annual payments property leaseholders have to make to freeholders.
A freeholder is someone who has outright ownership of the property and the land on which it stands with no time limit on the period of ownership.
A leaseholder is someone who has a temporary right to occupy the property and land.
The relationship between the freeholder and leaseholder is governed by the terms of a contractual document called a lease.
In recent years, house builders have been selling new build properties to buyers on a leasehold basis meaning the house builder retained ownership of the freehold. In many cases, house builders then went onto sell the freeholds to third parties, such as investment companies.
The leases granted by the house builders to buyers are usually for a long period, such as 250 years or 999 years. One payment often provided for in long leases is a “ground rent” meant to reflect the value of occupying the land/ground. Other payments provided for in long leases can include fees charged by the freeholder for considering and granting permission for the buyer to make any changes to the property, such as building an extension or for agreeing to a remortgage of the property.
I’m a leasehold owner and pay ground rent – Do I have problem?
Historically ground rents were low, no more than say £50 per year. However, in the last few years house builders have started to increase ground rents to an initial charge of between £250 to £500 a year. They have also added clauses in the lease that allow them to review the ground rent periodically, for example, every 5, 10 or 25 years.
Typically the review clause allows the freeholder to increase the ground rent at each review. Problems have arisen because house builders have included clauses in the leases which provide for ground rents to double or increase with RPI.
If you are a leasehold owner who purchased a new build property in the last ten years you should check your lease to see what it says about ground rent and what you can expect to pay.
A ground rent that doubles every 10 years doesn’t sound too bad
In theory it’s not. However, most new leases are set for a long term such as 999 years. If a ground rent of £250 per year doubles every 10 years you can expect to pay £16,000 per year after 50 years. For many people that is simply unmanageable.
But I will have moved home before that becomes an issue
Unfortunately, because of national publicity, many buyers are now aware of the problem and will not buy a property with an onerous ground rent clause. The existence of such clauses has also led to banks and building societies refusing to lend on those properties. This means that in the unlikely event that a buyer is still prepared to buy a property affected by a ground rent clause they are highly unlikely to be able to obtain a mortgage to complete the purchase. This clearly has a huge effect on the value of these properties and in some cases they may well be worthless.
What can I do?
If you have the finances you could try and purchase your freehold from the freeholder but in many cases the price of the freehold is vastly inflated amounting to tens of thousands of pounds
In theory it might also be possible to agree amendments to the terms of the lease and the ground rent clause but this is also likely to come at a significant cost.
Finally, you may have a claim against the Solicitors that you instructed to help with the purchase of the property. If the Solicitor failed to give you clear advice about the existence and implications of an onerous ground rent clause so that you could understand the risk and the impact then you may be able to successfully argue that your Solicitors have been negligent.
How can we help with ground rent claims
At Nelsons, we have a dedicated team of experienced solicitors – including Daniel Brumpton and Cathryn Selby, who are leading individuals in this area and are recognised by independently researched directories, such as the Legal 500. The team can help and guide you through these complicated claims from start to finish.
We can offer comprehensive advice on merits and how ground rent claims can be funded. In the right circumstances, we will offer a Conditional Fee agreement (also known as a No Win, No Fee agreement).