2018-12-04 16:27:46 UTC
Re: Ground Rent & Forfeiture - Felbridge Court UB3 5EP
Monday, 3 December, 2018 15:37
There is at least one part of the leasehold scandal not mentioned in this article. If the ground rent is more than £250 pounds outside London (£1000 inside London), then it becomes an Assured Shorthold tenancy agreement, and if the tenant (i.e. the leaseholder) does not pay the ground rent for 2 months (for ground rent paid yearly), then the freeholder can take back the property.
For example, for missing a ground rent payment of £260, the property returns to the freeholder without any chance to appeal or receive compensation.
It's more complicated than this but still could mean losing hundreds of thousands of £ for missing a payment.
From LEASE - Leasehold Advisory
Thank you for the Facebook posting on Sunday.
Ground rent may be fixed at the same level throughout the term of the lease or may rise, during the term, to a fixed amount or to an amount determined by a formula in the lease.
Traditionally, the initial ground rent in a lease was set at a nominal amount; but it is common today to find starting ground rents to be substantially higher.
This means that when they rise over time those increases can be significant.
Example 1: starting ground rent is £150 per annum and the lease states that it increases after 33 years to £300 per annum
Example 2; starting ground rent is £150 per annum, the lease states that the ground rent will increase after 33 years in accordance with an established index such as the
Retail Price Index
or Consumer Price Index
Example 3: starting ground rent is £150 per annum doubling every 10 years. This means that example this would mean the ground rent would rise to £19,200 in the 70th year of the lease.
An unintended and unfair consequence of increasing levels of ground rents is that where ground rents exceed £1,000 per year in Greater London and £250 per year elsewhere in England, leases are classed as an assured tenancy (“AST”) under the Housing Act 1988.
Why is having an AST a more insecure position than leasehold?
The main reason is the mechanism for ending the lease. Most leases provide the landlord with a right to forfeit [ https://www.lease-advice.org/faq/forfeiture/ ] if ground rent above a certain amount remains unpaid for a certain period which may well be, say, 14 or 21 days.
However the courts can intervene (it’s known as ‘granting relief’) which has the effect of reversing the forfeiture as long as the arrears are paid.
This right to grant relief does not apply to ASTs if at least three months’ rent is more than three months overdue:
1. At the date of service of a notice called a ‘Section 8 notice’ seeking possession ;and
2. At the date of the court hearing.
Where 1 and 2 apply, the court has no discretion. It must grant a possession order.
Mortgage lenders are alert to this issue and may refuse to lend if the lease provides a high ground rent or where the terms of the lease mean it will increase to one.
It is correct that as the law currently stands the level of ground rent could make it easier for landlords to take possession.
The Government is aware of the problem and has announced its intention to legislate to ensure leaseholders’ interests are protected.
It has said:
“The Government is aware that, where ground rents exceed £250 per year or £1,000 per year in London, a leaseholder is classed as an assured tenant. This means, for even small sums of arrears, leaseholders could be subject to a mandatory possession order if they were to default on payment of ground rent. The Government will take action to address this loophole and ensure that leaseholders are not subject to unfair possession orders.”
See response to a consultation paper entitled “Tacking unfair practices in the leasehold sector”
I hope you find this helpful, but please feel free of course to book an appointment with one of our advisers if you wish to discuss any particular aspect of this advice: