Leasehold arrangements have faced plenty of backlash over the years, with ground rent being one of the key issues for those arguing against this type of home ownership. As the name suggests, ground rent is the fee you must pay for the land your home is built on. Given that this is essentially a charge for nothing, many people feel that it is inherently unreasonable.
There are a number of other ground rent issues that can have a much greater impact than just slightly disgruntling property owners, and may even entitle them to bring a claim against their property’s freeholder. Keep reading this blog from Andrew Lee & Co Property Lawyers to find out more.
RPI-linked ground rent
It is fairly common for clauses to link ground rent to the Retail Price Index (RPI), which is a measure of inflation. Many people assume that, because these types of clauses are common, they are not problematic - this is not the case.
Under RPI-linked clauses, ground rent increases according to the percentage increase in the RPI over the past decade. This means that if inflation remains high for a long period of time, leaseholders can see dramatic increases in the amount of ground rent they must pay - it could even double.
Many lenders, therefore, have expressed concerns about RPI-linked clauses, particularly if the ground rent is high to begin with.
High ground rent
Specific issues occur when a property’s ground rent exceeds £250 a year, or £1000 if the property is in London. In that case, the property would be categorised as an Assured Shorthold Tenancy under the Housing Act 1988.
This legislation stipulated that if the leaseholder falls into ground rent arrears of 3 months, the landlord has a right to ask the Court to repossess the property and the court is unlikely to be able to refuse.
Even if the current owner is not concerned about falling into arrears, it can have an impact on the saleability and therefore value of the property whenever they decide to sell up.
Ground rents linked to other indices
Doubling ground rents and RPI-linked ground rents are most common, but these charges can also be tied to other indices, such as wages or house prices. These types of clauses create the same issues as RPI-linked clauses, in that they are unpredictable and can potentially subject homeowners to significant increases in ground rent.
Clauses linked to property price - whether that is average house prices or the open market value of the specific property - are particularly problematic at the moment, due to the dramatic inflation increase seen in recent decades and the last few years especially.
If you’re unsure whether your ground rent clause is problematic and whether it may give rise to a claim, Andrew Lee & Co Property Lawyers can help. Alternatively, if you’re a freeholder who wants to make sure your lease agreement is reasonable, our expert property solicitors are the people to turn to. We offer a range of property law services for both buyers and landlords and are committed to finding the best solution for everyone, every time. If you’re in need of assistance with any property-related matters, please do not hesitate to get in touch today.
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