Ground rents

Many owners of houses have found themselves at the sharp end of the effect of some archaic land law principles in recent years.

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Many owners of houses have found themselves at the sharp end of the effect of some archaic land law principles in recent years. Most people who buy a flat in a block expect to be buying a long lease of the flat. However, many people buying a house did not expect to be buying a long lease; but this is what they ended up with. The leasehold form of ownership is more restrictive than freehold at the best of times, there may be restrictions, for example, on whether the householder can extend their property or change the colour of the exterior paintwork. But this is insignificant in comparison with the problems which many homeowners have experienced regarding the problem of 'escalating ground rents'.

Paying rent is a feature of a leasehold arrangement but where the property is a house, the rent is usually a nominal figure and is referred to as 'ground rent'. However, to retain some value in the freehold of these houses, a number of developers included a mechanism in their leases whereby the ground rent doubles every 5, 10 or 15 years. A ground rent doubling every 5 years can lead to a modest ground rent of £50 per year reaching £1600 per year in this little as 25 years. 

There are a number of legal problems arising from these ground rent issues and these problems became worse where investment companies bought the freehold of housing developments. Homeowners found that their statutory right to buy their freehold was almost worthless because of the amount that they were required to pay the freeholder. A knock-on concern is that the effect of these provisions means that the houses have become very difficult to sell or mortgage. This has led to people feeling trapped in their own homes. 

The Competition and Markets Authority (CMA) has carried out an investigation into the 'ground rent scandal' and has announced that 2 companies are voluntarily taking action. The CMA reports that:

'Aviva has committed to remove certain terms from its leasehold contracts which cause ground rents to double, and Persimmon will now offer leasehold house owners the opportunity to buy the freehold of their home at a discounted price.'

This is undoubtedly good news for the affected homeowners but there are still many thousands of homeowners who live in properties the freehold of which is not owned by Aviva or Persimmon who face these problems.

Anyone thinking of selling an affected property should take specialist advice, particularly in relation to whether to exercise the statutory right to purchase the freehold. It is also essential for anyone buying an affected property to take advice from a specialist property lawyer. Failure to do so could leave people in homes that they are unable to sell.

To discuss wills or any other leasehold property matter, contact us.

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