The Issue When it Comes to Ground Rent

The issue of Ground Rent has been a sticking point for most Conveyancers over the last few years.  It still seems to be a point which causes heads to turn.  Not only are there several risks to highlight in order to protect our clients, there are also follow on issues which may make one reconsider their investment.

As it currently stands Ground Rent in a long residential Lease being above the threshold set out in Section 3A of Schedule 1 to the Housing Act 1988 can create an Assured Tenancy.

The threshold is a Ground Rent of more than £250.00 per year outside of London.  Any Ground Rent between £250.00 and £100,000.00 per annum means that the Lease is also an Assured Tenancy.  This means that if Ground Rent is not paid, it is much easier for the Freeholder to take back possession of the premises.  All the Freeholder needs to prove to the Court is that the qualifying amount of Ground Rent was due when the notice was served and at the date of the hearing. 

It is therefore essential to highlight the several risks listed below to our clients before they continue with their purchase: -

  • The Ground Rent is payable to the Landlord of the property every year in addition to the service charges.
  • The property may have a variable Ground Rent clause.
  • The Ground Rent will increase using the formula as stated in the Lease
  • Your Conveyancer cannot say what the future Ground Rent will be and whether or not it will be manageable. 
  • The Ground Rent is above the threshold set out in the Housing Act 1988 which is £250.00 per annum. 
  • The property is therefore held on an Assured Tenancy for the remaining term of years originally granted by the Lease. 
  • The Landlord will have greater rights to repossess the property if it is held on an Assured Tenancy.
  • If the Ground Rent which is payable annually is in arrears for a period of three months, the Landlord has a right to bring a claim for possession of the property. 
  • Purchasing a property which is or may be due to rent increase then held on an Assured Tenancy has an inherent risk with it.  You may lose all of the monies that you have invested towards the purchase and any increase in value of the property.
  • These issues identified will make the property more difficult to sell in the future.

We counteract these risks by requesting from the Landlord that the provisions in the Lease be varied in respect of the Ground Rent review mechanism.  Unfortunately not all Landlords are willing to vary the Lease and therefore we would ask them to at least confirm that they will not seek possession of the Property on the basis that the Lease has created an Assured Tenancy under any of the grounds set out in Schedule 2 to the Housing Act 1988.

Essentially it is on you as the buyer to consider whether the property is still worth your investment. 

Here at Leeds Day we are award-winning solicitors in St Ives offering a tailored range of services to businesses and individuals with offices in Huntingdon, St Ives and St Neots, we have a significant presence as solicitors in Cambridgeshire advising individual and corporate clients in the region, and beyond. Contact us today to find out how we can help.

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