Most leases of residential property attract a ground rent which is payable to the landlord. If you are the owner of a leasehold property, or if you are thinking of buying a leasehold property, it is advisable to carefully consider the ground rent provisions as set out by the lease to check if an escalating rent clause is incorporated into such provisions.
Whilst it is becoming increasingly common to see leasehold properties with high annual ground rent or escalating ground rent, a consequence of this is that if the ground rent is over £250 (or £1,000 for London), then the lease will fall within the definition of a tenancy under the Housing Act 1988 (unless the lease specifically states it is excluded from the Act).
Even though the current ground rent may be well below either of the figures as stated above, the problem could arise in years to come, when the increase in ground rent as set out by the escalating rent clause means that the thresholds are met and any future escalation in ground rent is not easily ascertainable.
How does this affect me?
- Relief would not be granted to you as leaseholder upon a landlord’s application to end the lease on the basis of unpaid ground rent (as described above) which would result in you losing your property, and if there is a mortgage on the property, you will still need to pay off the mortgage, as your lender will not have a property to re-possess.
- Potential purchasers may be put off purchasing your property
- The Solicitor acting for your potential purchaser will need to ensure that the interests of any lender are adequately protected.
Solutions to the problem
If your lease has the potential to become an Assured Shorthold Tenancy, there are possible solutions to overcome this problem as set out below:-.
- Vary the ground rent and/ or the escalating rent clause; or
- Vary the lease to include a provision to exclude the lease from the Housing Act 1988; or
- Incorporate a clause in the lease whereby the landlord will notify the lender before applying to the court for forfeiture
- If your landlord does not agree to a variation of the lease terms, an alternative lender only solution would be to check whether an indemnity insurance policy would be accepted by your lender (if you are taking out a mortgage).
Please bear in mind that costs are likely to be incurred in respect of the solutions described above.
Finally, it is useful to be aware that a lease is not an Assured Shorthold Tenancy if you do not occupy your leasehold property as your principal home, and therefore if you let it out, you do not need to worry. In addition, a lease granted to a company can never be an Assured Shorthold Tenancy.
If you are thinking of either buying or re-mortgaging a leasehold property and would like further information on this aspect of the conveyancing process, or if you have any other conveyancing queries, please contact the Conveyancing Department of Wheelers Solicitors LLP on telephone number 01252 316316 and a member of the team will be pleased to assist you and to discuss your requirements.