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Dealing with ground rent increases

Dealing with ground rent increases

Niki Adkins, Head of Frettens' specialist lease team, answers the most frequently asked questions about increasing ground rent.

Can my landlord increase ground rent?

If your lease expressly includes a provision for your ground rent to increase; yes.  However, if your ground rent is fixed at a certain level, your landlord cannot increase your ground rent without your agreement.

How often does ground rent increase?

The timing of any increases in your ground rent will be expressly stated in your lease.

What is doubling ground rent?

Some leases provide for a ground rent to start at a specified sum (e.g. £100.00) and for it to double at specific intervals in the lease. 

For example; to £200.00 at year 20 - to £400.00 at year 40 - to £800.00 at year 60 on so on.

Can you negotiate ground rent?

If your landlord is willing to negotiate/vary your ground rent; yes.  However, if your ground rent is to reduce, they will likely require you to compensate them (by way of a ‘price’) for the lack of payment they would have otherwise received in the future.

If you have owned your flat for two years, a ‘statutory’ lease extension enables you to force your landlord to reduce your ground rent to zero (aka a ‘peppercorn’); but again, you will need to compensate your landlord for their future loss of income.

I detail the differences between statutory and non-statutory lease extensions in this article.

How do I get out of doubling ground rent?

A ‘statutory’ lease extension not only increases the length of the lease, but also reduces the flat’s ground rent down to zero, making the flat more valuable, saleable and mortgageable. 

An extension is therefore something worth considering in order to head-off this potential problem before it becomes more expensive.  A lease extension becomes more expensive to buy the shorter the lease becomes; therefore, today is always cheaper than tomorrow.

What is a reasonable ground rent increase? / What is an acceptable ground rent increase?

Mortgage lenders (and therefore buyers) prefer ground rents to be as low as possible; or something that increases less often during a lease’s lifetime.  For example, a lender is likely to reject a ground rent that doubles every 5 years, whereas a doubling ground rent every 25 or 30 years is less problematic.  However, each lender is different so there are no set rules. 

A further point to consider is that lenders are changing their lending criteria all the time; they have changed more in the last 2 years than any other point in memory.  What may be acceptable today, may not be by the time you come to sell or re-mortgage the property.

The most reasonable and attractive ground rent is zero !

How do you buy out ground rent?

If you have owned your flat for two years, a ‘statutory’ lease extension enables you to force your landlord to reduce your ground rent to zero (aka a ‘peppercorn’); but you will need to compensate your landlord for their future loss of income.

Who sets ground rent?

A ground rent is specified in the lease of the property.  Neither a landlord nor flat owner can change the ground rent specified in a lease without the express agreement of the other. 

However, a flat owner who has owned their flat for more than two years can force the landlord to reduce their ground rent to zero (aka a ‘peppercorn’); but you will need to compensate your landlord for their future loss of income.

What is peppercorn ground rent?

It is a good old-fashioned legal term for zero/zilch/nada/nothing at all !

Are ground rents to be abolished?

The Law Commission has recently been consulting in relation to leasehold reform matters, such as ground rents and the Government made an announcement in early January 2021 that they intend to implement some of the Commissions recommendations.  The Government has suggested that new ground rents may be abolished in the future.  However, the following should be noted :-

  1. Such an abolition is unlikely to apply retrospectively i.e. if you are required to pay ground rent under an existing lease, this will likely remain the case.
  2. There is no guarantee that these proposals will become established law. Any proposed reform legislation will need to pass through Parliament’s law-making process, including debate in the House of Commons, which may alter the proposals depending on the arguments put forward.  Commentary has suggested that legislation is not anticipated until 2024/2025, so the reforms are not imminent, we’re afraid.

Case Study: Lease extensions to save ground rent

Niki Adkins is an associate and Head of Frettens’ specialist leasehold team.

The team deal exclusively with leasehold extensions and enfranchisements and have helped hundreds of leaseholders.

How to deal with rising ground rents

Niki and her team recently advised several clients in a large, exclusive block of apartments on the beachfront.

While the length of the leases (107 years) was not a particular issue, the increasing ground rents were. They were soon to increase by £300 per annum, with further subsequent £300 increases every 25 years.

Niki has already extended the leases of a dozen leases in the block, with more in the pipeline.

The lease extensions not only increased the length of the leases, but also reduced the flat’s ground rents down to zero, making the flats more valuable, saleable and mortgageable. 

A specialist solicitors’ opinion on rising ground rents

“Mortgage lenders have become more picky in the last decade (and especially in the last 2-3 years) in relation to what they will lend against in terms of leasehold property. 

Increasing ground rents have become a particular concern for lenders, resulting in some being less willing to lend against a lease with such a ground rent; as was applicable in this case.” 

Niki Adkins, Head of Frettens’ specialist leasehold team

Leasehold specialist solicitors in Bournemouth, Christchurch, Poole and the New Forest

Our Lease Extension Team is happy to discuss any of the issues outlined in this article.

If you have any questions, you only have to ask us at Frettens . Please call 01202 499255 or 01425 610100 and Niki or a member of the team will be happy to chat about your situation and your specific requirements.

We offer all new clients a free initial chat with one of our bright, knowledgeable lawyers.

The content of this article, blog or video is not intended as specific legal advice. For tailored assistance, please contact a member of our team.