Facing up to leasehold woes in the current market

13 / 09 / 2017

Q:  Should I delay purchasing my new build leasehold flat until after the government’s ground rent consultation?

A:  As alluded to in your question, the Government has recently launched a consultation paper which is looking into ways to tackle unfair practices in the leasehold market. The consultation is seeking views on a range of issues including, limiting the sale of new build leasehold houses and restricting ground rents on new leases to a “peppercorn”.

The issue of ground rents has been brought into focus in recent months particularly, perhaps, as a result of the situation in the North West of England whereby purchasers of leasehold houses have been stung by ground rents which start at relatively innocuous levels but double in size every ten years thereby producing exorbitant rates after only a small number of rent reviews.

Some lenders have already changed their requirements to ensure that the level of ground rent and/or frequency of rent views is unlikely to affect the value and saleability of the property.

The question of whether you should delay your purchase depends on what the ground rent starts at, how frequently it is increased and the formula for such increases.

If the level of ground rent is above £1,000 (if the flat is in Greater London) this would have the potential to cause you problems in the future as your landlord could terminate your lease for non-payment of ground rent without you having the right to obtain relief from forfeiture. The Government has said that it will amend the relevant legislation to bring an end to this particular potential problem. However, prior to the Government changing the law, your solicitor should take steps to protect your position by negotiating specific terms to limit any prospective problem.

If you do not already have a solicitor, please ensure that you use one that specialises in dealing with leasehold properties.

This article was first published in the September 2017 edition of The Resident London