Ground rents are an annual sum levied on owners of leasehold properties by the freeholder. The charge is nothing more than an acknowledgement that the freeholder owns the land the property is built on and, until recently, it was a smaller figure.
More recently, some developers have been setting their ground rents to double every few years with escalation clauses.
An example of this is where a clause is present in a lease requiring initial ground rent, at say £250 per year, however the clause provides that this will double every 10 years. In this example, by the 50th year of the lease the ground rent would be £8,000 per year. If the lease was for 125 years, the ground rent would be over £1million per year. Or, a ground rent of £500 that doubles every 10 years will be £32,000 per year after only 60 years.
There are multiple issues attached with escalating ground rents. Obviously, the future affordability is a concern. When it comes to selling the property, there will also be a real problem if there are escalating ground rents attached. It might be possible to vary the lease through a Deed of Variation so please give us a call if you are concerned!
If you would like to discuss this matter further please call Brianna in our Property Litigation team on 02380 213295.
Homeowners caught in a crippling ground rent trap