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Escape the ground rent trap – deed of variation or lease extension?

5th June 2018

Ground rents hit the headlines in 2017, when it was revealed that some of the leading housing developers had been charging annual ground rents which double every ten years. This sees costs jumping from a few hundred pounds to many thousands of pounds each year.

The government announced has new plans to ‘cut out unfair and abusive practices within the leasehold system, including a ban on leaseholds for almost all new build houses’.  Faced with the prospect of government sanctions, some housing developers are bowing to public pressure and offering their customers a variation to their lease.

Recently, developers have come forward with offers to change ground rent provisions to make them less onerous. For example, Taylor Wimpey, are offering to change the lease terms on properties they have sold so that rather than the ground rent doubling every ten years it will instead in line with the Retail Prices Index (RPI).

Julie Tomasik, Director at Ansons Solicitors in Lichfield, warns that ‘Depending on inflation, a variation to your lease could significantly reduce the amount of ground rent you need to pay over time, but there may be another option available which could put you in an even better position and you should take legal advice before signing anything.’

Unfortunately, the Taylor Wimpey scheme is only available to people who bought their properties directly from Taylor Wimpey and who still own them at the time the change to the lease is requested.  This will not help subsequent buyers.

You also need to bear in mind that by agreeing to your ground rent increasing in line with the RPI, you are also agreeing to an increase based on inflation, the rate of which is yet unknown.

According to Julie Tomasik, ‘A more attractive alternative is available to anyone who has owned a long lease for at least two years, and this is to apply for an extension to your lease under the Leasehold Reform Housing and Urban Development Act 1993.  By doing this you can avoid having to make any further ground rent payments whatsoever while adding 90 years to the length of your lease.  Both steps will undoubtedly increase the property’s market value and make it easier to sell at a later date.’

‘Anyone faced with a doubling ground rents in their lease ought to consider this,’ says Julie, ‘particularly given the automatic right to apply after two years and the significant benefits that can be derived from a lease extension.

For advice on ground rent provisions, or any other residential property matter, please contact Julie Tomasik on 01543 267988 or email jtomasik@ansonssolicitors.com.

The contents of this article are for the purposes of general awareness only.  They do not purport to constitute legal or professional advice.  The law may have changed since this article was published.  Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.