Derek Inkpin from local solicitors Wiseman Lee explains why a new law is a step in the right direction to ending the ground rent scandal in the world of leasehold property
Leases of flats sold say 40 or 50 years ago were normally for 99 or 125 years, at a fixed ground rent of £50 to £100 each year. In the past few years, however, land developers of both leasehold houses and flats have started to include ground rents of between £250 and £500 per annum. What is worse is that some leases now have rent review clauses, which allow the ground rent to double say every 10 years.
If a ground rent of say £250 a year doubles every 10 years, a leaseholder would be obliged to pay £16,000 each year after 60 years. Not only would a flat owner find that amount unmanageable, but the flat, if let, would have a rent expense that could not be passed on to the tenant.
If you had bought the house or flat and did not appreciate the problem of rising ground rents, and your solicitor also failed to notice this, your mortgage lender most certainly would not lend in such cases, and this at least would stop a purchaser buying a property that would be pretty much worthless on the open market.
All this may be familiar to you because in recent years it has hit the headlines as a mis-selling scandal. Leaseholders saddled with this problem may try to purchase the freehold to overcome their defective lease or alternatively try to agree amendments to their leases, but these potential solutions are likely to come at a significant cost. If solicitors fail to notice these problems then they are likely to face a successful claim against them for negligence.
Being stuck with an unsellable flat or house (much like the cladding scandal) is, of course, the stuff of nightmares. As a leaseholder, you will feel trapped due to unfair ground rent charges, and claiming against your negligent conveyancing solicitors may take years to resolve.
The Leasehold Reform (Ground Rent) Bill – which received Royal Assent on 8 February – seeks to tackle the unfairness of these ground rent situations. The government has committed to legislate to restrict ground rents in new leasehold houses and flats to a peppercorn rent (of no value). In addition, loopholes in leasehold law will be addressed to improve transparency and fairness. The new law will allow leaseholders of houses and flats the right to extend their leases as often as they wish at a zero ground rent for a term of 990 years. Just in case landlords try to impose administration charges instead of a peppercorn rent, this is prevented in the bill.
Although the new law will only apply to the grant of new leases, it is a step in the right direction after a scandal which has gone on for far too long.
Wiseman Lee is located at 9–13 Cambridge Park, Wanstead, E11 2PU. For more information, call 020 8215 1000