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VALUATION SOLUTIONS TO GROUND RENT PROBLEMS

There is no getting around the fact that leasehold ‘ownership’ is something of a misnomer.  If your property is leasehold then the sad truth is that you don’t actually ‘own’ it in the sense that we understand ownership to be.  What you have is a contract that gives you extensive rights of occupancy, subject of course to a myriad of terms and conditions, and crucially only for a finite period of time.  At some point in the future your flat will revert to the true owner of the land it sits upon – your freeholder.  It is only the freeholder who can claim these hallowed rights of ownership in perpetuity.

Having accepted the fact then that you are only a temporary ‘owner’ of your property you may sadly also need to accept that the contract by which you have this somewhat tenuous claim (your lease) may be, and very often is, flawed.   Sometimes very flawed.  In some cases there may be significant restrictions on the use of your the property such as the inability to sub-let or alter or extend but even more serious potentially is the fact that your time may be running out or you may have found yourself bolted to an unpalatable ground rent.  It is this final flaw that I will be considering here – the ground rent issue.

The whole question of ground rent and whether or not it is a fair charge on the leaseholder is presently under the microscope but most leaseholders would agree, I’m sure, that fairness has very little to do with it.  To rub salt in the wound it would be true to say that the majority of flat developments constructed over the past 20 or so years have ground rent patterns that are rather (and sometimes significantly) more expensive than was previously the general custom.  For older leases of typically 99 years it would have been common practice to see an initial ground rent of perhaps £50-£100 rising on fixed increments to perhaps no more than £100-£400 on a 33-year review pattern.  In more recent times, however, one would be much more likely to see an initial rent of £200 or more and rising in a much more aggressive way, more frequently and on a steeper upward pattern.  At one end of the scale this might, for example, be on a 15-year or 21-year RPI review arrangement whilst at the other you might find a ground rent that doubles every 5-10 years.  Ground rents linked to the property value are also now commonplace.  In the more extreme cases there can be no doubt that an ‘over-engineered’ ground rent of this nature will have a strong, prejudicial impact on any resale of the property.  ‘Unsaleable’ is maybe putting it too strongly but it can be close at times.   Landlord opportunism – leaseholder oppression?

For some little while now there has been an ongoing war with leasehold (the ‘Leasehold Scandal’ as it has oft-times been referred to) and as part of that war the Law Commission was charged by the government to investigate the problems and come up with some recommended solutions.  They have duly now reported their findings through a series of reports after many, many months of preparation and consultation with interested and involved parties.  For a minute or two at least therefore one might be forgiven for thinking that the cavalry may be on its way.  https://www.lawcom.gov.uk/options-for-reforming-valuation-in-leasehold-enfranchisement-published-by-law-commission/#:~:text=The%20Law%20Commission%20of%20England,known%20as%20%E2%80%9Cenfranchisement%E2%80%9D).

www.lawcom.gov.uk/options-for-reforming-valuation-in-leasehold-enfranchisement-published-by-law-commission/www.lawcom.gov.uk/options-for-reforming-valuation-in-leasehold-enfranchisement-published-by-law-commission/

Whilst the reports are now sitting there, however, the truth is that leasehold has long and deep-seated historic roots in this country and there are enormously high stakes involved from the perspective of the freeholder community.  That would include not only the usual estate owning suspects but also many pension funds and charitable institutions who could be seriously disadvantaged by any damaging retrospective measures.  This was never likely therefore to be an overnight solution and the speculation when the Law Commission’s first report was finally issued in January gone was that it would be at least 2-3 years before we would see any formal government response – whatever that might be.  First Brexit and now COVID, however, will almost inevitably have slowed down even further the timeframe for any governmental intervention reaching the statute book.  Even when such reform may come the question arises as to how this might be enacted retrospectively to those already under contract.  That will likely therefore leave thousands of leaseholders with unwanted problems and issues on re-sale for the foreseeable future.  Take some comfort, however, in the fact that for every problem there is a solution.  It may not be the most palatable of solutions but it will be a solution nonetheless.

Our role is plain and simply to find the best solution for you in whatever circumstances may present themselves.  To minimise your pain and extricate you from your burden as it were.  So here are a couple of golden rules for you to be going on with:

  1. If there is anything other than a clearly defined uplift in your ground rent review don’t, whatever you do, just let your freeholder set that uplift without first challenging it; and
  2. Don’t try and sell your property with an unpalatable ground rent without first having investigated the possible solutions.

Call us now to find out how we can help.

Barry Passmore BSc MRICS ACIArb

Barry is a chartered surveyor with over 35 years’ experience as a professional valuer.

His ‘quality over quantity’ ethos is aimed at setting a new benchmark for professionalism in modern estate agency.

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