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Ground Rent: The Implications of Unfair Ground Rent Provisions

1st November 2018

The number of new build leasehold purchases has grown tremendously over the past decade especially with the introduction of Government equity schemes to help first time buyers step on to the property ladder.  Controversially, while individuals are being encouraged to become homeowners, it seems that many new build leases contain excessive ground rent clauses, many of which allow the ground rent sum to double every ten-twenty years.

This issue is particularly highlighted in the Department for Communities and Local Government published a summary of Government consultation responses in December 2017 (Department for Communities and Local Government: ‘Tackling Unfair practices in the leasehold market’ Summary of consultation responses and Government response December 2017: View/Download PDF). While the Government has made it abundantly clear that the objective is to tackle these unfair ground rent provisions, the question is to what extent are these Developers complying and how much care is being taken by the legal representatives.

To what extent do these excessive ground rent provisions affect leaseholders personally many of us wonder. Not only does this put many leaseholders out of pocket financially but it leaves many homeowners feeling like ‘prisoners’ in their own home. For example, a lease which contains provisions allowing ground rent to commence at £500.00 for the first ten years, and double every consecutive ten years, the ground rent will eventually be so high beyond most individual’s ability to manage. Yes, it is true that many leaseholders may not be directly affected by the higher rent sum, leaseholders are not being advised properly to take into account the impact on the future marketability of their property. For example, when selling the property, future mortgage lenders will require any excessive ground rent provisions to be reported to the Lender. This may in turn become a disadvantage in trying to re-mortgage the property or selling the property on to an individual who requires a mortgage.

If you have already completed on a purchase which you have later found to include a doubling ground rent clause you can contact a Solicitor or Conveyancer who may be able to assist.

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