How does the doubling of ground rent impact leaseholders?
Over the past 20 years a number of developers have sold flats and houses on a leasehold basis with exploitative ground rent review clauses. These clauses saddle unwitting buyers with ground rents that double every ten or fifteen years, leading to spiralling costs.
The table below gives an example based on a typical flat, sold in 2000 on a 125 year lease with an initial ground rent of £250 set to double every ten years, as compared to a Retail Price Index (RPI) increase:
| Year | Doubling Ground Rent | RPI Based Ground Rent | |||
| 01/01/2000 base = 167.3 31/12/2010 base = 228.40 | |||||
| 2000 | to | 2010 | £250 | £250 | |
| 2011 | to | 2020 | £500 | £341 | |
| 2021 | to | 2030 | £1,000 | £454 | |
| 2031 | to | 2040 | £2,000 | £604 | |
| 2041 | to | 2050 | £4,000 | £803 | |
| 2051 | to | 2060 | £8,000 | £1,068 | |
| 2061 | to | 2070 | £16,000 | £1,420 | |
| 2071 | to | 2080 | £32,000 | £1,889 | |
| 2081 | to | 2090 | £64,000 | £2,512 | |
| 2091 | to | 2100 | £128,000 | £3,342 | |
| 2101 | to | 2110 | £256,000 | £4,444 | |
| 2111 | to | 2120 | £512,000 | £5,911 | |
| 2121 | to | 2130 | £1,024,000 | £7,862 |
This doubling of ground rent and future liabilities have made most mortgage companies refuse to lend against affected properties. This leaves owners feeling trapped in homes they cannot sell.
Options for leaseholders impacted by the ground rent scandal
However – all is not lost. If you find yourself in this position, then there are options available to make your property saleable or achieve some redress. These include:
1) Requesting a statutory lease extension from your freeholder
This will change the ground rent clause to a ‘peppercorn’ amount (i.e. a negligible sum) and add 90 years onto the existing term of the lease.
It is important to note that this option involves direct negotiation with your freeholder. Red Brick Management operate as Managing Agents and cannot negotiate on your behalf. There will also be a cost payable to the freeholder. We have written previously about statutory lease extensions here.
2) Agreeing an informal lease extension with the freeholder – changing the ground rent to usual terms without adding years to the lease.
This option is likely to be more cost effective for you, but it will impact the Capital Value of the property. This is because ground rent will still be payable and the lease will be shorter than under a statutory lease extension.
3) Pursuing a Professional Indemnity Insurance Claim or complaint against the solicitor that acted for you
If your solicitor advised you to complete the purchase despite a ground rent clause, you may be entitled to compensation.
4) Await government action on recourse
New proposals on leasehold reform suggest capping annual ground rents at £10 and banning the sale of new houses as leasehold, except in specific cases such as community ownership.
These proposals – which some argue do not go far enough to combat the problem – were prepared by the Law Commission and, as of January 2019, are currently under government consultation.
5) A combination of the above
You may wish to speak with a solicitor unconnected with your original house purchase about these options.
Additional options for Taylor Wimpey direct leaseholders
Taylor Wimpey Homes have created a rent review assistance scheme and are attempting to settle cases with new freeholders. This scheme is only available to leaseholders that purchased directly from Taylor Wimpey, or previous forms of the company such as George Wimpey/Wimpey Homes.
