Escalating Ground Rents

When buying a new build property escalating grounds rents are often overlooked by purchasers when offered with incentives such as stamp duty land tax and/or legal expenses being paid by the developer or even the inclusion of furnishings. Escalating ground rents which double every 10 or 15 years means that a nominal ground rent of £500 can become £1000 in ten years time then double again to £2000. This completely by-passes house price growth, especially when you consider that many Victorian conversion leasehold property’s (that will be in excess of 100 years old) have a ground rent that is typically £250 - £500 per annum.

Thankfully the CMA (Competitions and Markets Authority) is requiring the removal of ground rent terms which it thinks are unfair from all existing housebuilder's contracts to make sure they are no longer in breach of the law. The companies must also agree not to use the terms again in any future leasehold contracts.

Andrea Coscelli, CMA Chief Executive, said: "These ground rent terms can make it impossible for people to sell or get a mortgage on their homes, meaning they find themselves trapped. This is unacceptable. Countryside and Taylor Wimpey must entirely remove all these terms from existing contracts to make sure that they are on the right side of the law. If these developers do not address our concerns, we will take further action, including through the courts, if necessary."

Housing Secretary Robert Jenrick said: "The Government asked the CMA to conduct this investigation. I strongly welcome their efforts to bring justice to homeowners affected by unfair practices, such as crippling ground rents, which have no place in our housing market. This behaviour must end and I look forward to appropriate redress being forthcoming for leaseholders. The Government is pursuing the most significant reforms to leasehold in forty years, including by protecting future homeowners, restricting ground rents in new leases to zero and ending the use of leasehold in new houses altogether."

Written by David Coplin-Chard