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Leasehold Property - Does Your Annual Ground Rent Exceed £250.00?

View profile for Harvey Gibbs
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“The ground rent on my lease is more than £250. Should I be worried?”

This is a question which many leaseholders, and buyers of leasehold properties, have been asking in recent years.

The chances are that if you own a long leasehold property, such as an apartment, you will be paying an annual ground rent to the landlord. This is quite normal. However, in recent years there has been a new concern about those properties where the ground rent is more than £250. This is because if the ground rent in those cases is not paid then, quite separately from the provisions in the lease, the landlord will have the power to take possession of the property and terminate the lease.

Note that if your property is in Greater London then the figure is £1000, and my references to £250 below should be construed accordingly.

You may feel that, even if your ground rent does exceed £250, then as long as you pay your rent on time it will not be of concern to you. However, if you have a mortgage then your lender may still have a concern as of course they will not know whether the payment of your ground rent is up to date and the risk to them is that if the lease was to be terminated then they would lose their security for the loan. This in turn may pose a problem for you when you come to sell your property, as the buyer may not be able to obtain a mortgage.

If your ground rent is less than £250, and you fail to make the payments, then you are in a better position as the landlord’s options are limited. Under the terms of your lease they will be entitled to take possession of your property through forfeiture proceedings, but this involves a lengthy legal procedure and, even if it is successful, either you or your mortgage lender will then be entitled to make an application to the court for relief from forfeiture. Accordingly, there is some protection for the leaseholder and their mortgage lender and in practice you will have time in which to clear the arrears.

However, where your ground rent is more than £250, and you are living at the property as your sole and principal home, then the landlord has another option. This is because under the Housing Act 1988 the lease will be regarded as an Assured Shorthold Tenancy. In such cases the landlord is entitled serve a notice on the tenant where the tenant is in breach of the tenancy due to the rent being in arrears. If at the time when this notice is served there are at least three months rent arrears, and the landlord then makes an application to the Court which proceeds to a hearing, then the landlord will be entitled to an order for possession of your property. This means that you will be evicted from the property regardless of whatever you paid when you purchased the property. Furthermore, there is no requirement for your mortgage lender to be given notice of the application and they will lose their security when the order for possession is made. It is this which is the crux of the current issue with ground rents that are over £250.

“My ground rent is less than £250 so presumably there is nothing for me to be concerned about?”

Possibly. However, it is important that you or your conveyancer checks the lease to see whether there is any ground rent review provision whereby the rent may be increased above £250 in the future. If there is such a provision then there may still be an issue as a buyer or their mortgage lender will look ahead to the time when the rent may increase above £250, and that may affect their decision to buy or lend against the security of the property.

“What can I do about it?”

Unfortunately, there is not a simple answer.

The first option is to approach the landlord with a request to amend the lease by way of capping the ground rent at £250. Even if the landlord agrees (which they may not), the amendment will have to be made by way of a Deed of Variation which will usually take some time, and cost, to complete.

The second option is to exercise the statutory powers that exist to extend the term of the lease (if you qualify), as this has the effect of reducing the ground rent to what is known as a peppercorn (IE no financial rent). However, this will come with considerable cost and time.

The third option, which is not always available, is to take out an indemnity insurance policy to cover the risk, but this will not be acceptable to all buyers or mortgage lenders.

“Is the Government going to do anything about the problem?”

Hopefully yes. Four years ago, the Government started a consultation process called “Tackling Unfair Practices in the Leasehold Market” and the results were published in December 2017. The proposed measures include a proposal to amend the Housing Act 1988 so that the landlords right to take possession proceedings because of ground rent arrears will not apply to long leasehold properties, and to limit ground rents on existing leases to £250 per annum (£1000 in Greater London). However, it is not known when these proposals might become law.

If you own a leasehold property, and the ground rent does exceed, or has the potential to exceed, £250 then you should take your conveyancers advice about the options that are open to you, particularly if you are thinking of selling your property in the near future.

For an initial consultation or quotation regarding annual ground rents that exceed £250, please contact the Feldon Dunsmore team on 01926 954694.