What is a leasehold?

Leaseholds generally apply to flats with shared spaces, but developers – particularly in the north west of England - have been increasingly selling houses as leaseholds.

If you are the leaseholder of a flat or house, you will usually have a clause in your lease which explains the conditions around your ground rent.

If you're unsure of the differences between freehold and leasehold properties, read our guide to leasehold vs freehold.

What is ground rent?

As a leaseholder, ground rent is a fee you must pay to the freeholder of your property as a condition of your lease.

Ground rent is usually a nominal sum of around £50 to £200 a year, but it can be significantly more depending on your lease. 

Can the cost of ground-rent increase?

The freeholder, who is your landlord in this relationship, cannot insist that you pay more than the ground rent set out in the lease.

Ground rent is usually fixed in the lease, but some leases - especially among new-build leaseholds - contain a rent-escalation clause which allows the ground rent to be increased.

The ground rent may increase by fixed amounts at set intervals. Or it may increase at a later date in accordance with a formula such as a percentage of the rental value of the property. 

Alternatively, any increase may be in accordance with a recognisable and published formula such as the retail prices index (RPI).

Some ground-rent increases are rising in accordance with no recognisable formula, simply doubling after a fixed period of time. Unfortunately this isn't currently illegal. 

The Government is conducting a consultation on what could be seen as punitive ground-rent review clauses for leaseholders.

The problem with doubling ground-rent clauses

It will be more difficult to sell a leasehold property which has a doubling ground-rent charge that rises after 10 years.

For example, if you buy a house in 2017 with an initial ground rent of £500 per year, which doubled every 10 years, by 2067 you could be paying £16,000 per year in ground rent alone.

This doubling of ground rent may have an impact on the marketability and mortgageability of the lease when you come to sell or if you’re trying to buy a property with such a clause.

Some lenders may not agree to offer a mortgage on a property with a doubling ground rent. Nationwide has formally started declining mortgage offers which include a doubling ground rent clause.

Whose responsibility is it to check for a doubling ground-rent clause?

It is the responsibility of your conveyancer to advise you, as their client and the person purchasing the leasehold, about the ground-rent-increase provisions. Your conveyancer should also alert you to any other matters relating to your purchase.

If you’re looking at leasehold properties, especially if you're considering buying a new-build flat or house, make sure you are happy with your choice of conveyancer or solicitor.

You are not obliged to use a particular solicitor or conveyancer because the developer has suggested them. 

Developers may offer incentives to do so such as suggesting that it will ‘speed up the process’ or give you money off the sale but, as with all professional services, you should check that you are happy with the solicitor/conveyancer who is being recommended before committing to use them.

Be aware that mortgage advisers do not as a matter of course have sight of the lease. It is ultimately the responsibility of your conveyancer to alert you to potential issues pertaining to the lease. 

Your conveyancer may recommend you instruct a surveyor/valuer to ask them to advise whether the rent provisions are likely to impact on the value of the property.

Can I buy the freehold to my house before the doubling ground rent applies?

If you can afford to buy your freehold, that’s great. But just be extremely cautious of promises made by developers that you will definitely be able to buy the freehold before a review of your ground rent would apply.

While it is a legal obligation for your freeholder to offer you the opportunity to buy the freehold of your leasehold house, we have found that developers have sold on the freehold to investors within two years without the knowledge of homeowners.

The new freeholders are often property investment companies, who then increase the cost of buying the freehold, which they are legally able to do.

With increased charges, leaseholders are then finding they are either unable to save enough to buy the freehold to a leasehold house, struggle to afford to stay in the property or face having to resort to the developer’s buy-back scheme, where they would get less than what they paid to sell it back.

With a doubling ground-rent increase 10 years after the initial purchase, there is little chance for homeowners to buy their freehold and increased risk of not being able to sell on their leasehold.

Can I buy the freehold to my flat before the doubling ground rent applies?

While you aren’t able to buy the freehold of your leasehold flat as separate from the freehold of the other flats in a block, you do have the right to club together with other leaseholders in your block to buy a share of the freehold of the building. 

This right is called collective enfranchisement.

If you owned a share of the freehold, you would be able to control service charges, eliminate ground rent and usually extend your lease for free.

But, collectively buying a share of the freehold with other leaseholders in your building can be time consuming and costly.

I’ve already got a leasehold agreement with a doubling ground-rent clause. What can I do?

Speak to your developer about a Deed of Variation, which would mean getting the clause removed or amended.

You may be able to change your ground-rent clause so that it rises against RPI, rather than having your ground rent increase in a way which is not linked to the market.

If your developer is offering to remove the clause, make sure you get in touch with them to register your details.

If your developer has not made it clear whether they can remove or amend the clause, reach out to them as soon as possible to ask if this is something they can do.

You may find it more difficult to arrange a Deed of Variation if the developer has already sold the freehold on, as the developer would no longer be the landlord of your leasehold.

Any landlord and tenant can agree to a Deed of Variation, but it will be easier to get this changed if:

  • You were the first occupants in the new build, bought it from the developer on-plan or off-plan, and the developer is still the freeholder
  • You were the first occupants in the new build and bought it from the developer on-plan or off-plan when they were the freeholder - even if the developer is no longer the freeholder

If you have a doubling ground-rent clause in your contract, then there’s a high chance others will too – especially if you are living in a block of flats or new-build development.

So, you could also speak to your Residents’ Association, Management Company or the Leasehold Advisory Service, as they may be able to help you with your correspondence with the developer.

Taylor Wimpey leasehold homes

Developer Taylor Wimpey has set aside £130m for its new Ground Rent Review Assistance Scheme, designed to ‘alter the terms of the doubling lease’ for buyers who bought one of their properties which have a lease with a 10-year doubling ground-rent clause.

The developer has since sold the freehold of many of its properties on, and is working with the organisations that now own the freehold of the relevant properties to convert the doubling leases to an alternative lease structure.

It has said it would pay Deed of Variation costs for those who bought a property from them while they were the freeholder.

For further information on the scheme, including qualifying criteria and guidance on how to start the process, see the Frequently Asked Questions (FAQ).

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