Unless you have been living under a (freehold!) rock in the last few years, you have probably had the misfortune of learning that ground rent increases in leases can be problematic. In fact, that is probably the reason that you are looking at this article.
In a previous blog, I discussed what can be done if you find yourself in the situation of having a ground rent that doubles or increases in some other unsatisfactory manner.
Essentially, you can agree a deed of variation with your landlord, or you can extend your lease under the Leasehold Reform Housing and Urban Development Act 1993 (LRHUDA 1993) so that the ground rent is reduced to a peppercorn.
Mostly, it is doubling ground rents that lenders and buyers are rejecting and RPI increases are (at least for the time being) seemingly acceptable provided they don’t increase too regularly.
This is reflected in the Public pledge for leaseholders or ‘Leaseholder Pledge’ signed by a number of well-known freehold and development companies. You can find a list of those participants here if you want to check if your Landlord is included: https://www.gov.uk/government/publications/leaseholder-pledge/public-pledge-for-leaseholders
In summary, the main points relating to ground rents are that the participants pledge to:
1. Identify leases within our portfolio which contains a clause whereby ground rent doubles more frequently than every 20 years, contact leaseholders to inform them and offer to amend to one linked to RPI.
2. Ensure the process for leaseholders to acquire the freehold on their home or extend the terms of the lease is uncomplicated, transparent and fair and upon obtaining a freehold after the date of this pledge, respect any written formal arrangement concerning the terms of enfranchisement made by the previous freeholder, i.e. the developer, by whom the lease was sold.
3. Not insert into any future lease agreement a clause whereby ground rent doubles more frequently than every 20 years.
4. Inform a leaseholder in advance to advise them of any planned change in the ownership of their freehold.
Many of those participants are getting in touch with leaseholders to offer them a deed of variation for free and some are even offering a contribution towards your legal costs.
Personally, I am sceptical about whether RPI increases are really that much better than doubling as we have no idea what they will be in the future (at least doubling ground rents offer us some certainty in that respect) – however, lenders and buyers are still accepting them for the time being, and I am informed by surveyors that the change from doubling to RPI may bring down the cost of a lease extension under the LRHUDA 1993. If you can obtain the variation without cost then it may be a worthwhile change (though that very much depends on the terms of your lease), particularly if you want to sell and the buyer is willing to accept the varied lease.
One downside is that where you are offered a change to the increases in your lease, you are generally expected to agree that you won’t take any further legal action against the participant in relation to the ground rent. You are effectively agreeing to give up your legal right to take action against them in return for the change to your lease – however, if you weren’t planning to go down that route anyway then you might take the view that you have nothing to lose in that regard.
If you have received an offer to vary your lease from doubling ground rent increases to RPI and you’d like to discuss it with one of the team then please do get in touch.
Partner