Written by
Caroline Polder
Trainee Licensed Conveyancer
Even though it is commonly termed a “long lease,” specific conditions can categorise your lease differently. If your ground rent surpasses £250 per annum (or £1000 per annum in London), and you are using the property as your primary residence, it falls within the regulations of Assured Tenancies as outlined in the Housing Act of 1988.
An important consideration arises if you fall behind on ground rent payments by three months. In such cases, the landlord is entitled to seek repossession through Ground 8 of the Act. Ground 8 is a mandatory ground for possession, so the court cannot refuse even if it is unfair.
This situation poses potential risks to a lender’s security, significantly diminishing the property’s mortgage eligibility and marketability. Presently, many lenders are hesitant to provide loans if certain conditions are met, such as the ground rent exceeding £250 (or £1000 in London) the inclusion of unreasonable multipliers (doubling every few years), or if the ground rent surpasses 0.1% of the property’s value.
There are a few options available to address the challenges associated with leasehold properties:
Many lenders may offer security for a leasehold property by obtaining an indemnity policy, covering potential losses they might incur.
It’s crucial to note that this policy typically safeguards the lender (but not the buyer) and may not be agreed upon by the buyer or their solicitors.
A more effective solution involves negotiating with the landlord to modify the lease terms, limiting ground rent to £1,000 per annum in London and £250 per annum elsewhere.
However, landlords may be hesitant to agree to these changes unless offered a substantial premium along with their legal expenses.
This approach may involve a significant amount of time and legal costs, making it a less straightforward option.
Each option has its pros and cons, and the feasibility depends on the willingness of the parties involved to negotiate and the specific circumstances of the leasehold agreement. Consulting with legal professionals is advisable to explore the most suitable course of action based on the unique details of the situation.
What changes are the Government making?
The Leasehold and Freehold Reform Bill introduced to Parliament will give homeowners a fairer deal, and greater rights and protections.
Guide to the Leasehold and Freehold Reform Bill – GOV.UK (www.gov.uk)
This article is intended for guidance only and does not constitute legal advice – 2024
Trainee Licensed Conveyancer
Conveyancing Paralegal
