Lease extension under Act - higher ground rent?

[Albany]

All,

I am negotiating a lease extension to my property and the landlord would prefer to go under the Act for his own capital gains purposes.

He has suggested an extension value including a peppercorn rent. My question is: under the Act framework can I suggest a lease that does not include a peppercorn rent, i.e. remains as it is now?

Obviously, the existing ground rent has some value to the landlord and I would rather pay a lower lease extension charge and ground rent than a higher extension charge and peppercorn. I do not believe future buyers will discriminate greatly between peppercorn ground rent and a couple of hundred pounds.

So, does the Act regime offer me this kind of flexibility, or do I have to move to a peppercorn level?

Many thanks

[Corinne Tuplin]

Hi there,

Under the statutory lease extension regime, there is no flexibility with regards Ground Rent. It reduces to a peppercorn for an extra 90 years of lease term. You would need to negotiate outside the statutory regime for more/less.

Kind regards,


CORINNE TUPLIN
SOLICITOR
PRO-LEAGLE
www.proleagle.com

[jeffrey]

Under the statutory lease extension regime, there is no flexibility with regards Ground Rent. It reduces to a peppercorn for an extra 90 years of lease term. You would need to negotiate outside the statutory regime for more/less.
Yes, because that's what s.56(1) of the 1993 Act prescribes. See underlined text below.

56. Obligation to grant new lease

(1) Where a qualifying tenant of a flat has under this Chapter a right to acquire a new lease of the flat and gives notice of his claim in accordance with section 42, then except as provided by this Chapter the landlord shall be bound to grant to the tenant, and the tenant shall be bound to accept:

(a) in substitution for the existing lease, and
(b) on payment of the premium payable under Schedule 13 in respect of the grant,

a new lease of the flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease.

[Gordon999]

if peppercorn ground rent = Nil ground rent, then you should be able to ask for a higher selling price as no ground rent is payable .

[sgclacy]

if peppercorn ground rent = Nil ground rent, then you should be able to ask for a higher selling price as no ground rent is payable .

In theory yes but in deciding wheter to buy a flat or not the ground rent does not figure in most purchasers minds, unless it is significant. In my opinion a significant ground rent would be more than 0.2% of a flats value

In many ways a landlord and tenant can both win (particularly if the lessee is selling) if instead of going under the terms of the Act they agree to a lesser premium but reserve a higher ground rent. The overall package benefits the freeholder and the outgoing lessee gives up less capital. The important point for the lessee is to ensure the rent does not adversly effect the value of the flat.

[sgclacy]

One of the reasons the rent was set as a peppercorn when the legislation was drafted was to ensure no lender could object to a lessee extending their lease so the mortgagee does not need to instruct a valuer to review the terms

[WakeyWakey]

...you should be able to ask for a higher selling price as no ground rent is payable.

How much do you think the price of a property is influenced by having ground rent of £200 compared to having ground rent of £0?

[jeffrey]

How much do you think the price of a property is influenced by having ground rent of £200 compared to having ground rent of £0?
Presumably by the capitalised value of £200 p.a. (say £3000 or so)?

[sgclacy]

Presumably by the capitalised value of £200 p.a. (say £3000 or so)?

If the world was populated by accountants (of which I am one) and acturies it would, but in the real world it does not

[Albany]

The landlord prefers to go under the Act, and any non-Act extension value is greatly in excess of what I'd hope to achieve by offering the existing ground rent charge. Sadly, I will have to bite the bullet and 'buy' the peppercorn value, which really has no value to me. As other posters say, in the real world £200 per year ground rent is ignored in purchasing decisions...

[WakeyWakey]

...what I'd hope to achieve by offering the existing ground rent charge...

I do not seek sympathy for landlords but demanding, collecting, chasing, accounting for etc. rather small amounts ground rents annually (or half yearly or quarterly) does not make economic sense to the freeholder. Agents charge more to collect ground rents than for some other rents and this lessens the return still further. Some landlords do not bother collecting small ground rents at all. It should not therefore be surprising when a landlord declines to enter into a new, long-term contract which will be increasingly costly to operate each year.

Have you offered the landlord a realistic, initial ground rent? You might be last lessee the landlord has in his portfolio and he may have been waiting for the day that you took out a new lease so he could be finished with ground rent collection forever!