Part 1: The Escalating Ground Rent Scandal: The Problem for Houseowners

This is the first of a two part series in relation to issues concerning escalating ground rents. In this first part, we will look at the problems for houseowners.

There has been a great deal of publicity recently surrounding the issue of ground rent escalation clauses in connection with leasehold properties.

In the past, most houses were sold with freehold titles meaning the owner would own the land beneath the house, the house and garden land itself, and the airspace above.

However, in recent decades there has been an increase in new estates being sold off as houses with leasehold titles. This means that the developer retains the freehold and can seek to charge a yearly ground rent to the houseowners. It also means the developer can impose certain restrictions, like prohibiting extensions or alterations without the developer’s consent. Houseowners seeking consent can sometimes be  charged administration fees of hundreds of pounds before they are granted the consent by the developer.

Traditionally, ground rents were normally under £100 and would be increased periodically by a fixed amount. For example, under a 125 year lease the initial ground rent may be £100 per annum going up after 25 years to £125 per annum and after 50 years increasing to £150 per annum and then staying at that level for the remaining 75 years of the term.

In recent years, developers have been using new formulas to deal with these rental increases, for example doubling every 10 years. These ‘doubling’ formulas do not appear unreasonable at the outset of the lease, however the rental liability quickly increases and will ultimately make a house unsellable.

For example, under a 125 year lease, with an initial ground rent of £100 per annum which doubles every 10 years the rent would increase as follows:-

1. Year 1 – £100
2. Year 10 – £200
3. Year 20 – £400
4. Year 30 – £800
5. Year 40 – £1,600
6. Year 50 – £3,200
7. Year 60 – £6,400
8. Year 70 – £12,800
9. Year 80 – £25,600
10. Year 90 – £51,200
11. Year 100 – £102,400
12. Year 110 – £204,800
13. Year 120 – £409,600

If you are considering buying a leasehold house, you should ensure you check the ground rent provisions carefully, or ask your solicitor to confirm the position. It is your solicitor’s responsibility to ensure that none of the provisions in the lease will affect the value of your house in the long term or your ability to sell it, and to report to you, and your lender, in full.

It is also worth remembering that defaulting on payments of ground rent (regardless of how unaffordable they may be) may lead to legal proceedings being commenced, and possibly a County Court Judgement (CCJ) being entered against you. This would have an impact on your credit rating and may even result in forfeiture of the lease, resulting in the loss of your home.

If you would like any advice in connection with the lease of a house you already own, or you are considering buying a leasehold property, please do not hesitate to contact either Andrew Mackenzie in our Runcorn office or Zoë Paton-Crockett in our Gadbrook Park office who would be happy to assist.