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Onerous Ground Rent Provisions in Leases

Due to bad publicity in recent months, concerns of flats and leasehold houses having onerous ground rent provisions have come to light.  This could result in these leases becoming highly unmarketable within the next two decades when most of them will be due for review.

More well-known cases is that of Taylor Wimpey who charged doubling ground rents on leasehold houses every ten years. This caused the government to take notice. Now The Ministry of Housing Communities and Local Government (MHCLG) have created a consultation paper on unfair practices in the leasehold market. The department proposed a range of measures such as a ban on the future sale of new leasehold houses and restricting ground rent on newly established houses and flats to a peppercorn rent.

It is essential for leases to be reviewed very carefully. Any onerous ground rent provisions can be identified and pointed out at an early stage to a potential buyer for negotiations to take place with the seller and the freeholder. Having the lease varied if at all possible to make it more marketable. In any event, this provision would automatically have to be reported to the lender for their authority to proceed. Unfortunately, many lenders are not prepared to lend on leases with onerous ground rents. This leaves an increasing problem in the rise of some leases becoming unmarketable with potential buyers being unable to obtain a mortgage. Or worst still existing owners of leasehold properties who will not be able to remortgage or raise finances on current leases with the potential of escalating ground rents.

If a leaseholder suspects that their lease may have an onerous ground rent provision, in the first instance they should seek legal advice and the possible solutions available to resolve the issue on the lease.

For further information please contact the experienced Conveyancing team.