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If you own a flat or a house on a newly built estate, the likelihood is that you are one of the many who are a leaseholder, which means someone is charging you ground rent.
In the past, ground rents have been fairly low but property developers identified that there was another opportunity to make money by setting a high ground rent that increased rapidly over the years and then selling that on to investors so many new houses and flats are now leaseholds.
The downside to this is that those leaseholders are finding it extremely difficult to sell those properties as mortgage lenders are reluctant to lend to buyers. This affects the value of the property and has left many owners trapped in their property and unable to sell it.
If you have a ground rent that doubles or increases rapidly, you may be entitled to compensation.
What time’s best for you?
The good news is that we can help you. We offer a free evaluation to establish if you have a decent chance of a successful claim and if we believe that you have, we can offer a “No Win, No Fee” arrangement for your claim which we will be happy to go through with you at the time.
This is the person or company that has outright ownership of the property and the land it sits on without there being a time limit on that ownership.
This is a person or company that has a temporary right to occupy the property and land. That “temporary right” can be anything from a month to 999 years. Most new residential leaseholds are at least 125 years.
This is an annual fee that leaseholders pay to the freeholder for occupying the property and land.
In some leases, developers inserted clauses that meant the ground rent increased rapidly and disproportionately, for example, doubling every ten years, this had two consequences. In some cases it meant the lease now fell into a different category of lease (similar to a lease if you were renting your property to a Tenant for, for example, six months) and that category of lease means mortgage providers are reluctant to lend, as they are concerned that if you breach your lease, you could lose your lease and they would lose their security. The other consequence is that mortgage providers simply will not lend where the ground rent doubles in this fashion.
When you buy a leasehold property, you are effectively only buying the right to occupy the property for a specified number of years from its freeholder. After that period the ownership of the property reverts to the freeholder.
Mortgage providers have recently started to reject applications from purchasers of properties which are subject to onerous Ground Rent clauses. We have had a number of clients wanting to buy a flat who cannot because they cannot get a mortgage for it, this means it is very difficult to sell the property. It means only a cash buyer (i.e. no mortgage) can buy the property and this will affect the sale price that can be achieved.
Even to a cash buyer, a property affected by the onerous Ground Rent terms will be unattractive as the burden of the clause will be passed on to them via the purchase. There is a very real risk that Leaseholders will remain locked into their lease agreements, unable to sell their properties and forced to continue to pay the escalating rent charges.
A claim against the developers or management companies is in most instances not likely to be successful as the Leaseholder will have freely entered into that contract. However, their solicitor should have pointed out these onerous terms as well as their implications. If they have not, they could have been negligent. Where a solicitor is liable for negligent advice, a claim for compensation can be made by the injured party. Leaseholders who were either provided with negligent advice or negligently provided with no advice, as to the terms of the escalating ground rent, will be entitled to compensation.
The aim of a compensation claim would be to put the leaseholder into the position that they would have been in had they not been affected by their ground rent clauses. The starting point for assessing loss will usually be the difference between what you paid for the property and what it was truly worth with the onerous clauses. It has been estimated that the value of some properties has decreased by as much as 30 per cent because of the escalating Ground Rent clause.
This estimation takes account of the amount and rate of escalation, the refusal by mortgage providers to lend, the difficulty in selling and the necessity of attracting a cash buyer. If a claim is successful, the compensation received could then be used to attempt to purchase the freehold or to extend the lease or keep the compensation but take no further action.
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