Is your ground rent grounded?
An issue that is becoming more and more prevalent in the world of leasehold properties is escalating ground rents. Newspapers in the past have reported the outrage of some property owners finding that their home has become unsellable because the doubling ground rent has spiralled into the thousands. This however is just the start of the issue.
The acronym AST, or Assured Shorthold Tenancy, is usually associated with short term tenancy agreements, the sort you would expect if you were renting a property. However, as surprising as it may sound, your long lease that you’ve paid hundreds of thousands for could also be considered an AST.
The Housing Act 1988 contains provisions that will make the lease of any leasehold property with a ground rent over £250 (or if it is in London, over £1000) an AST. Do remember that here we are talking about ground rent only, not service charges, and should be considered separately.
Please also note that these provisions also only apply to leasehold properties where the leaseholder is using the property as their main place of residence. If you are renting out your leasehold property, the Housing Act provision referred to above will not apply.
What does this mean?
The key issue faced by leaseholders in light of the above is that if you fall behind on ground rent payments, you could find yourself facing proceedings to be evicted and the lease ‘given back’ to the freeholder.
A standard lease will contain provisions that deal with a default on your ground rent payments, and as a minimum will include provisions to add interest for late payment. Ultimately, a landlord could eventually take you to court to reclaim possession of the property, although if the arrears are paid off you can be granted relief and allowed to retain the property.
However, if your long lease is considered an AST, some additional, much harsher provisions apply under the Housing Act. The freeholder’s right to “forfeit”, or the termination of the lease and reversion of the property to the freeholder, is far more severe. If there are three months’ worth of rent outstanding and they have been outstanding for a period longer than three months, the court has no option but to order the lease to be forfeited and the property passed back to the freeholder.
What should I do?
If you are buying a leasehold property, your solicitor should check the ground rent provisions of the lease as part of their advice to you. If you are buying with a mortgage, you should be aware that some lenders take a harder line on ground rents than others, with some lenders refusing to lend on leasehold properties above the Housing Act thresholds unless the lease is varied or an indemnity insurance policy is taken out.
If you already own a leasehold property with a ground rent above the threshold, or a ground rent that could increase above the threshold shortly, you could contact your landlord and enquire as to whether they would be happy to vary the terms of your lease.
How can Askews help you?
Your local firm of Coventry Solicitors, Askews Legal LLP, has a dedicated team of commercial property specialists who would be able to assist you in dealing with a variation of your lease. For further advice or to obtain a quote, please contact Kuljeet Sandhu, Head of Commercial Property at Askews Legal LLP.
E: KSandhu@askewslegal.co T: 02476231000
