Do You Have A Problem Ground Rent?

Much of the publicity around the leasehold scandal has understandably focussed on doubling ground rents. However, other ground rent clauses are also onerous and may have an impact on the value and may give rise to a claim.

RPI-linked clauses

RPI-linked ground rent clauses are fairly common and many people may therefore assume that they are unproblematic.

However, as recent dramatic increases to the RPI have shown, RPI-linked ground rent can give rise to uncertain and potentially substantial increases in the amount being paid.

If inflation remains high over a protracted period then the increases can in practice be equivalent to doubling clauses. That is why many lenders have concerns about RPI-linked clauses, particularly if the starting ground rent is high, whether absolutely or relative to the purchase price.

A high ground rent

One of the issues with ground rent is that they are an expense for nothing and thus arguably inherently unreasonable.

However, specific issues occur when the ground rent exceeds £250/ £1000 per annum (the higher figure if the property is located in London).

In that case, it would be categorised as an Assured Shorthold Tenancy under the Housing Act 1988. It follows that, if the leaseholder falls into ground rent arrears of 3 months, then the landlord has a right to apply to the Court to repossess the property under Ground 8 of the Act. Ground 8 is a mandatory ground for possession which means the Court cannot refuse.

Even if the current owner is not concerned about falling into arrears, it may have an impact on the marketability and therefore value of the property on re-sale.

Grounds rents at more than 0.1% of the purchase price

Another important measure of whether the ground rent is high is whether the initial figure exceeded 0.1% of the purchase price. This is part of the lending criteria for many banks.

Ground rents linked to other indices and OMV

Whilst doubling ground rents and ground rents linked to the RPI is the most common, ground rents can be tied to other indices, most commonly linked to either wages or house prices.

These have the same problems as the RPI in that they are uncertain and thus subject to potentially dramatic increases.

Property price-linked escalation clauses are particularly problematic – whether linked to average house prices or the open market value of the specific property – because of the dramatic inflation in prices which has been seen in recent decades and the last couple of years in particular.

Conclusion

It will often be a combination of these factors that will make a ground rent onerous i.e. linked to the RPI, at a rate of more than £250 per annum and in excess of 0.1% of the property value.

If you have a ground rent and are uncertain whether it is onerous and may give rise to a claim then please get in touch. We can assist with instructing an expert to consider the matter and its impact on value, and review whether you may have a claim.

In many cases, this should be done as soon as possible because of the time limits for bringing claims, which if missed can result in them becoming barred and lost forever irrespective of the loss suffered.