Although there is greater awareness about leases with high ground rents and the effect these can have on values, many leaseholders still feel trapped in properties with a lease worth less than they paid for it and they can’t sell on. If this applies to you, you should be aware of your options.
If you purchased the property from the developer and are the original leaseholder, you may find that the landlord will be prepared to vary the terms of the lease and may have put aside funds in order to put this issue right.
Even if you were not the original purchaser, you may find that your landlord will be willing to enter into a deed of variation to alter the ground rent provisions, albeit often in return for the payment of a premium. Many landlords will be reasonable about dealing with this issue assuming a fair compromise can be found.
You should also consider whether you were properly advised when you acquired the property and whether you have any recourse against your advisors. Most buyers probably were properly advised about their obligations when buying, but the property itself and its location were more important to them at the time. But there are also likely to be a significant number of cases where advice given was not sufficient. If this applies to you this is something you should consider pursuing.
If your landlord will not voluntarily assist, leaseholders should consider enforcing their rights under the leasehold reform legislation. Long leaseholders of houses can acquire their freehold after owning the property for 2 years. Long leaseholders of flats can extend their leases (with the accompanying result of reducing their ground rent to a peppercorn) or often combine with their neighbours to acquire the freehold from the landlord and then enter into new leases on a peppercorn rent. There are premiums payable in return for enforcing these rights and valuation advice should be sought as to the likely cost, but generally, the longer leaseholders wait to enforce these rights, the higher the premiums are likely to be.
The cost of enforcing these rights is prohibitive for some, but there is a strong argument for help from lenders since once these rights are enforced, the value of the mortgaged interest will increase. The lender should also look at the advice they received when the property was acquired.
Finally, there is the question as to whether the government is going to help, which is still unclear. The newly appointed Secretary of State for Housing, James Brokenshire has yet to announce his views. The government seems keen to deal with the issue but whilst it can legislate for the future, there are a number of challenges to be overcome where onerous leases have already been entered into, not least that two parties have willingly entered into a contract.
So if you are in a situation with an onerous ground rent, we suggest you seek advice and deal with the issue as soon as possible, rather than waiting for a change of law.
Leigh Shapiro, a partner in the residential and leasehold enfranchisement property team at Irwin Mitchell
