Ground rent doubling every 10 years

[sandras]

Hello....please can anyone tell me whether it is common for leases for new build properties to include a ground rent review clause whereby, on each rent review date (every 10 years) the ground rent is increased to double the rent before the relevant rent review date?

From my calculations, based on rent doubling every 10 years, looks like one will have to pay almost £2.5m per annum as ground rent during the last 10 years before the 150 years lease expire !!!! Is this real???

Thank you very much for your valuable advice/comments.

Lease years Ground rent payable per annum
1 to 10 yrs £150
11 to 20 yrs £300
21 to 30 yrs £600
31 to 40 yrs £1,200
41 to 50 yrs £2,400
51 to 60 yrs £4,800
61 to 70 yrs £9,600
71 to 80 yrs £19,200
81 to 90 yrs £38,400
91 to 100 yrs £76,800
101 to 110 yrs £153,600
111 to 120 yrs £307,200
121 to 130 yrs £614,400
131 to 140 yrs £1,228,800
141 to 150 yrs £2,457,600

[sgclacy]

The lease would be almost unmortageable.

If you are the owner of the flat and your solicitor did not advise you of this you may have a claim against the solicitor for failing to draw to your attention such a liabilty.

You can of course apply for an extentsion under the lease once you have owned the flat for two years, not because the term is a problem but it would enable you to negotiate a premium whereby the ground rent is extinguished.

As to the premium it would depend on what discount rate is used for the income. It would be argued by the landlord that such a rental stream is most attractive and argue that the discount rate should be perhaps 6% you might persuade the tribunal to adopt 7%. As you will see a small diff in the rate effects the premium significantly

6.00% = £40.1K
6.25% = £32.2K
6.50% = £26.2K
6.75% = £21.4K
7.00% = £17.8K
7.25%= £14.9K

[jeffrey]

sandras: Does the business name 'Blue Dolphin' ring any bells? Was it mentioned on any deeds or documents concerning your property?

[Gordon999]

Are you leaseholder of a Taylor Wimpey flat ?

http://es.homesandproperty.co.uk/groundrent.html

Better contact your MP to draw attention to your ground rent problem and ask why the Government is unwilling to change to Commonhold?

[jeffrey]

Are you leaseholder of a Taylor Wimpey flat ?

http://es.homesandproperty.co.uk/groundrent.html

Better contact your MP to draw attention to your ground rent problem and ask why the Government is unwilling to change to Commonhold?
1. HM Government changes its mind a lot but cannot lawfully change the law.
2. Parliament (with Royal Assent) can, however.
3. The 2002 Act already allows the bonkers Commonhold system to be adopted by:
a. a new development's builder/vendor; or
b. the collective leaseholders who own- jointly- the freehold reversion. The absence of any meaningful shift speaks for itself!
See http://www.landlordzone.co.uk/forums/showthread.php?t=11699&highlight=commonhold for official statistics.

[Donkin]

I know this will annoy many contributors, but is the cost of living meant to double every ten years?

By doubling the ground rent the actual monetary value of the rent to the Landlord remains the same relative value?

As property values increase by more than double every ten years the developer is only reflecting your increased values in their rent charge.

The rent on the leasehold flats in my building is £25 per year, this was a reasonable sum in 1980 but hardly worth bothering to collect in 2009.

PS. Not sure but someone (an Economist) will either discredit this theory or give arguments to support it.

[thevaliant]

I'm no expert, but, assuming inflation runs (at an average) of about 2% per year for the next 150 years (very hard to say) then the total value, in today's money of the ground rent collected is £3,602,517. That's in today's money!

The total rent collected is £761,607,750.

I've no idea if such a lease is genuine, but as sglacy says, it would be practically worthless.

[sgclacy]

The safest thing for both parties is to have an indexed ground rent linked to the RPI or to the increase in average earnings

This ensures that the freeholder income is not erroded by inflation and the lessee can be certain that the income never gets out of hand. This could happen if we have a prolonged period of defaltion a lease that doubles the income every 25 years could be a significant burden

[Poppy]

I'm no expert, but, assuming inflation runs (at an average) of about 2% per year for the next 150 years (very hard to say) then the total value, in today's money of the ground rent collected is £3,602,517. That's in today's money!

The total rent collected is £761,607,750.

You had fun adding that all up, didn't you. :p

[sgclacy]

7% compounding for 10 years almost halves the value of money

and 10% for 7 years also does the same as a crude rule of thumb

[sgclacy]

I'm no expert, but, assuming inflation runs (at an average) of about 2% per year for the next 150 years (very hard to say) then the total value, in today's money of the ground rent collected is £3,602,517. That's in today's money!

The total rent collected is £761,607,750.

I've no idea if such a lease is genuine, but as sglacy says, it would be practically worthless.

I think you may need to revisit your calculations you say that the total rent collected over thr 150 years is

1 to 10 yrs £150
11 to 20 yrs £300
21 to 30 yrs £600
31 to 40 yrs £1,200
41 to 50 yrs £2,400
51 to 60 yrs £4,800
61 to 70 yrs £9,600
71 to 80 yrs £19,200
81 to 90 yrs £38,400
91 to 100 yrs £76,800
101 to 110 yrs £153,600
111 to 120 yrs £307,200
121 to 130 yrs £614,400
131 to 140 yrs £1,228,800
141 to 150 yrs £2,457,600

Simply add 150+ 300+ 600+1200....+2457600 and take the result and times by 10


£4,915,050 X 10 = 49,150,500

If inflation was 2% and you demanded no more than to be protected from inflation. In otherwords you do not adjust the discount rate for your cost of capital and risk is ignored then the NPV of that income stream is £3,531,879= £3,532,000

Taylor Woodrow would be out of the Sh1t overnight

[thevaliant]

Simply add 150+ 300+ 600+1200....+2457600 and take the result and times by 10

£4,915,050 X 10 = 49,150,500

Yes. You are right. Sitting here with Excel open and compounding the rent even more.

But I think the point stands regarding time value of money.

On a practical note, I wonder if the freeholder realises what they have done by creating such a lease.... (I assume they have) because it is quite simply evil.

[jeffrey]

Not evil but greedy.