Ground Rent – real or racket ?

All answers are valid & very informative. Most off plans are new and as such would have a higher ground rent. The ground rent is however stated in the lease. 25% of the rent as ground rent seems unlikely until your rent is low or ground rent & service charges are being collected together and thus making the 25%.

The biggest rip off is the Insurance commission that the Freeholders charge in some cases as high as 40% for insuring a block !!!! There are other kick backs.

Who are your managing agents ?? are they connected to "Consort, Peverel, home & counties " If they are, than, google them and you will develop insomnia. At the last count they had a web of 400 companies.

Reply to the comment left by "shakeel ahmad" at "11/07/2013 - 09:30":

Please see this thread >>> http://www.property118.com/what-property118-is-not/

We are getting into grey areas here. It's fine to discuss strategies but naming companies can open up a can of worms in terms of potential defamation claims.

I absolutely agree with Mark here. If I make make a few points. Firstly, not all freeholders, large or small, are villains. As it happens we manage an estate for the freeholders Gary is talking about and have done so for years without problem. They appreciate that we know what we are doing and they leave us alone to get on with things as long as they get their ground rent. Shakeel is on very dangerous ground as if he reads the financial press he will see that the group he mentions were part of a legal action last year which went very badly for the SFO. As it happens we manage a block for them and although they are very tough if the managing agent is seen to be doing things properly as long as they get their ground rent they are okay. Sure, some of them do take over the top insurance commissions but that is really quite rare now owing to LVT decisions and the more effective Lands Tribunal decisions.
Two further points. Not all lessees are wonderful. On that subject I could write a book. Lastly, not all managing agents know what they are doing. The very large chains have very little follow through on what their junior staff are doing and have a much large turnover of staff than small firms dedicated to block management. Also, when property sales and rentals are down you often find that estate and letting agents open block management departments either within their firms or under a different name to try and improve their income stream. Without wishing to sell the sort of firm I represent - and also acknowledging that there are plenty of people who hate us; especially when they have not paid service charges for years and are facing proceedings - if you have a firm who come recommended by someone you trust and who will provide good solid management at a reasonable and fair price, not an inflated fee for things such as charging for a junior running to the building every five minutes with a clip board to "check" on the condition of the property - you will find that your management agent can deal with the freeholder and that mostly things are okay. It's quite fashionable to bash freeholders and managing agents but if you had seen as many rows within buildings as RTMs can cause and where people have actually sold up because they have got so fed up you will realise that the alternative can be worse.
the last misconception I want to refer to is the fact that LVT is some sort of final refuge for disgruntled lessees to finally achieve their ends. It is not. It is actually an extremely fair forum for setting landlord and tenant disputes and lessees receive no more favourable treatment than freeholders or managing agents. In general the panel at an LVT Hearing are highly accomplished and experienced individuals who can get to the point of an issue in no time.

Could I add one final plea and that is to echo Mark's thoughts. I have never blogged before and have always refused to do so because sites are clearly political or have a particular axe to grind. Mark has brilliantly navigated Property 118 to avoid all of that and it would be such a shame if this were to change.

Hi Peter,

I'm afraid there are no simple solutions.

On the face of it, you agreed to terms of the lease when you purchased the property; and you are required to pay the ground rent reserved under it.

Remember, it is only variable service charges that must be "reasonable" within the meaning of s.19 of the Landlord and Tenant Act 1985. Fixed service charges are not subject to that requirement. Generally speaking, if you sign up to a fixed cost, you must pay it.

You are not entirely without recourse, however:

(i) You have a statutory right to acquire a new lease of your flat, with a term of 90 years plus the remaining term of your existing lease (so, a 90 year extension), and with a ground rent of a peppercorn.

The catch is that you will have to pay a premium for this; and part of the premium involves compensating the landlord for the loss of ground rent.

If you want to see how much a lease extension is likely to cost you, there are several lease extension calculators available (I don't think I am allowed to link to my own ... yet).

For a more accurate calculation, I would recommend appointing a surveyor, who specialises in leasehold enfranchisement/lease extension valuations. The Association of Leasehold Enfranchisement Practitioners website has a good search facility.

(ii) You may the right, together with at least 50% of the other leaseholders in the block, to acquire the freehold of the block; and grant yourselves new 999 year leases, at peppercorn rent, and whatever other terms you consider to be appropriate.

Again, you will have to pay a price for the freehold.

(iii) If you are feeling brave, you could always try challenging the rent on the grounds that it is an unfair term within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999. Terms which are unfair within the meaning of reg.5 are not binding on the consumer (reg.8).

We know that the 1999 Regulations apply to tenancy agreements, and this would include leases (R (Khatum) v LB Newham [2004] EWCA Civ 55; Rochdale BC v Dixon [2011] EWCA Civ 1173; Peabody Trust v Reeve [2008] EWHC 1432 (Ch)).

The European Court of Justice also recently reminded us of this fact, in Brusse and another v Jahani BV C488-11; a case concerning Directive 93/13/EEC, which gave rise the 1999 Regulations.

That being said, I think the rent would have to be particularly onerous to be caught by the 1999 Regulations (e.g. doubling every ten years, from £200, for a 999 year term; or increasing after 20 years to 1% of the property value on a £800k house, both of which are real cases I have come across). Although high, I am not sure your rent would satisfy that threshold.

(iv) Arguably, you solicitor should have brought your attention the level of rent, especially given that you were purchasing as an investor. You may want to bring this up with him (or her).

On the poor management, you have a range of rights available to you, which you may wish to explore:

(i) You can challenge the reasonableness of management fees at the First tier Tribunal (Property Chamber), formerly the LVT. Management fees are a "service charge" within the meaning of s.18 of the Landlord and Tenant Act 1985, and must be recoverable under the lease and "reasonably incurred" (s.19 of the 1985 Act).

(ii) You may be able to acquire the landlord's management functions, together with other leaseholders in the block, by exercising the right to manage, provided certain conditions can be satisfied (mostly relating to the building).

(iii) If RTM is not available, you could consider an application to the FtT(PC) to appoint a manager. This is a fault based process and you would have to prove bad management.

I would echo of the advice given above, however: none of these are ideal solutions. The FtT(PC) is very much a last resort; and the right to manage can be successful, in certain cases, but it really depends on a multitude of factors.

Reply to the comment left by "Annette Stone" at "08/07/2013 - 16:56":

Hi Annette,
I have a similar issue. We are buying a flat in a new development. The leasehold is 999 years but reading the contract it specifies that the ground rent is GBP400 per year for the first 10 years and then it doubles every ten years until the 50th anniversary.

We are a bit concerned as it seems too high even though is a long lease. Every where we read everyone talks about GBP300 pounds to be reasonable and as you say a increase to double every 25 years more acceptable.

We have to exchange contracts within the next 2 days and we are not sure if this is a deal breaker. Already asked our solicitors and they affirmed this to be normal and said there is nothing they can do about it.

What would be your advise. Comments from similar experiences are welcome.

Thanks

I don't think such laws are applicable in rents. Its better to consult a law adviser.

Tiko
Rent doubling every 10 years will rapidly escalate rapidly. Over the past 30 years the Retail Prices Index has gone up less than 200%, i.e prices have not quite tripled. With your proposed lease the rent would have gone from £400 to £3200 pa, an eight fold increase. Project forward another 20 years and it is 9x increase (or less) in prices but the rent will inexorably rise to £12,800pa. (It is not clear from your post whether your rent doubles on the 50th anniversary or if the last doubling is on the 40th when the rent will become £6400 pa).

Either way I strongly recommend against such a bad deal. The flat will become harder to sell and may decline in value.

Even with rent doubling every 25 years it is likely to outpace inflation.

I have been buying flats for 25 years and I would never sign up to this. In NO circumstances would I agree to a doubling of ground rent every 10 years and I suggest that if the freeholders will not agree to ground rent reviews at no less than 25 year intervals you buy something else. A flat with ground rent like this will always be very difficult to sell on and the ground rent has clearly been set to increase the freehold values. I also buy freeholds and would not buy anything with such ground rent terms as I think they lead to problems

Reply to the comment left by "Roger Hardwick" at "22/07/2013 - 13:40":

Hi Roger

Of course you can link to your lease extension calculator - your firm are sponsors of Property118 🙂

See http://www.brethertons.co.uk/leasehold-extension-calculator/?utm_source=Property118&utm_medium=Textlink&utm_campaign=Article
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Reply to the comment left by "Tiko Taylor" at "09/04/2014 - 23:30":

Tiko

I think the advice you are being given here is quite conclusive, just check out the member profiles of the people offering this advice too.

Good luck whatever you decide.
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