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Reducing Ground Rent to a Peppercorn

When your ground rent invoice comes through each year or six months do you think of all the ways that you would rather spend that money? You have already paid a hefty purchase price for your flat and you have to pay service charges each quarter, so another few hundred pounds each year feels unnecessary.

Did you know that a statutory lease extension will reduce your ground rent to a peppercorn rent, i.e. nothing?  The peppercorn rent will be payable from the date the lease extension completes so, not only will you not have to worry about next year’s ground rent, you may get a refund of the ground rent you have already paid.  You may not need the additional 90 years that a statutory lease extension brings, that would just be an added bonus.  Also, the more years a lease has remaining, the less it will cost to extend.

The peppercorn rent is for the duration of the extended lease.  So, any future rent reviews increasing the ground rent will no longer apply.

Obviously it would be nice to have that extra money in your pocket, but there is also a more serious reason why you might want to extend your lease in order to reduce your ground rent to a peppercorn and that is, back to this again, so that you are able to sell or remortgage your flat.  Some rent review provisions mean that a flat is unmortgageable now or may become so in the future.

Over the last 15-20 years large housebuilders have introduced a range of rent review provisions into their leases.  However, some of these provisions, as innocent as they may look, can have a sting in their tail which makes a lease unaffordable in the future.

Lenders have realised this and now have strict criteria for rent review provisions in residential leases.  Examples of these rent review provisions, which are now unacceptable to many lenders, are things such as:

  • a ground rent which doubles every 10 or 20 years;
  • a ground rent increasing in the first 21 years of the lease;
  • a ground rent exceeding 0.1% of the value of the flat at the time of purchase/remortgage;
  • a ground rent greater than £250 outside London or £1,000 within Greater London.

Lenders generally accept RPI rent review provisions, but reviews must not be too frequent, i.e. no more often than every 10 years.

If you think your lease has a rent review provision which is, or could soon become unmortgageable, then please get in touch.  I am happy to look over your lease for free.  In some cases, a statutory lease extension will not be required, as the Landlord may agree to vary the rent review provisions of the lease.

It is best to check these things now, before there is a need for the rent review provision to be dealt with, such as when there is a remortgage or a sale in hand, as you may be able to negotiate better terms with your Landlord than if you are under pressure.

For more information please contact Ruth Burrell.

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