What is Ground Rent, and why should I pay it?
Posted on 7th January 2020
The Law Society Gazette has reported that one firm alone is said to be dealing with 750 claims of homeowners seeking compensation in relation to their Leasehold title.
There have been examples of Solicitors getting the ground rent figures wrong, cases where Solicitors have not have not reported to the Client that ground rent will increase or that the value of the ground rent will affect the value of the property in the future.
There are currently a reported 1.4 million leasehold houses in England and each subject to ground rents averaging £371 per year. There has been a petition set up last year to abolish leaseholds and free ‘the millions trapped in this antiquated draconian leasehold system’ which has currently attracted more than 14,500 signatures!
Despite this a short drive down the road in any direction from Garstang will have you coming across new build development properties, many of which will have a Leasehold title, thus allowing the developers to keep having a bite of the cherry well after the initial sale. Think of it like buying an expensive pair of shoes, you buy the shoes, you love the shoes but you are charged more money by the shop keeper each time you actually put the shoes on your feet. It sounds daft in those terms doesn’t it? In simple terms though the concept of leasehold is not too far away from the shoe example. You buy the leasehold house, but you have to keep paying the freeholder “ground rent” as the freeholder is leasing you the land that the house is stood on. Some leases will say that ground rents will increase after a certain period of time or will increase over time in accordance with a specified formula. If you’re lucky the ground rent may stay the same for a set period of years and if you are very lucky the ground rent will be a peppercorn.
You are not required to pay Ground Rent until the Freeholder actually sends you a formal demand notice which must include your name, the period that the demand covers, how much you have to pay, the name and address of the freeholder, the name and address of the managing agent if there is one and the date at which the payment is due. You do not have to pay the ground rent if the Freeholder or Managing Agent will not give you a name and address in England or Wales where you can contact them.
If you do not pay the Ground Rent the Freeholder can take Legal Action the Freeholder can apply to Court to recover what you owe or apply to the court for forfeiture action (this means that they can apply to take possession of the property), the Freeholder may also be able to impose penalties for late payment. The freeholder can only start forfeiture action for not paying ground rent if you have been in arrears for three years or more or you owe £350 or more in ground rent (or a combination of ground rent, services charges and administration charges).
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