Affected by ground rent scandal: how do I sell?
What is the ground rent scandal explained in full & how to sell if you've been affected...
Since the early 2000s, owners of leasehold properties have been struggling with escalating ground rent, with some escalating so high that the owners are unable to afford to live in the property.
It wasn’t until 2017 that this hit the headlines and was named the ‘ground rent scandal’. It’s estimated more than 100,000 property owners are seeing their ground rent escalate unfairly, making it increasingly likely that, as an owner of a leasehold property, you’re going to be affected.
Those affected by the ground rent scandal will be looking for a way out of their property but will also face difficulty when it comes to selling, with high ground rent charges and the knowledge of the ground rent scandal pushing buyers away from leasehold properties.
So, what can you do if you’ve been affected by the ground rent scandal? How do you go about selling? And what is currently being done to battle the effects of the ground rent scandal?
We’re going to answer these questions for you, as well as explaining what exactly the scandal is and whether or not a freeholder can increase your ground rent.
What is ground rent UK?
Ground rent is a fee that is paid each year by the leaseholder to the owner of the freehold. This is only paid in a leasehold property, as in a freehold property you own the land your property is on, as well as your property itself.
The terms of how the ground rent should be paid will be set out in the lease, stating whether it should be paid in one yearly instalment, half-yearly or quarterly.
There are two different types of ground rent – fixed and escalating. Fixed ground rent will mean the fee will remain unchanged throughout the lease whereas escalating increases over the course of the lease.
The reason ground rent is paid is because in a leasehold property you don’t own the land the property is on, as this is owned by the freeholder. Even if the freeholder changes, the terms of the ground rent shouldn’t change, but that’s not to say this doesn’t happen.
Ground rent only covers the cost of the land the property is on, meaning you will still have further costs such as a service charge, rent, house repayments and general housing bills.
Ground rent also doesn’t cover the cost of maintenance, building repairs or costs of upkeeping communal areas. This is a separate fee known as a service charge.
What is the ground rent scandal?
The ground rent scandal, which you may also hear referred to as the leasehold scandal, hit the headlines in 2017 as it emerged that well-known housing developers were including a clause in the lease contracts that meant owners were obliged to pay increasing ground rents to the freeholders.
These clauses were meaning that ground rent spiralled so high that leaseholders could no longer afford to live in their homes, but were also struggling to sell them, as no one else wanted to take on these high ground rent charges.
Buyers were being sold leasehold properties without fully understanding the lease contract they were entering into. The freeholders were then selling the freehold to offshore investors, without offering the leaseholders a chance to buy it first.
The offshore investors would then demand ground rent charges which were disproportionate to the value of the property and highly unaffordable.
Although the leasehold scandal came to attention in 2017, the scandal dates back to the early 2000s. New build developers were getting ownership of freeholds at an extremely fast pace. The leases were also granted over a shorter time period than what is normally expected.
Buyers of leasehold properties were told if they wanted to buy the freehold, they would be able to do so in the future for a small amount of money, but when it came to it this was no longer the case.
Can a freeholder increase ground rent?
This will depend on what type of ground rent is written into your lease agreement. If you have fixed ground rent, then naturally your freeholder won’t be able to increase it.
However, if the ground rent is escalating and it’s been written into the lease that there will be a review every X number of years, then the freeholder does have the opportunity to increase the ground rent at every review.
For example, your freeholder may have a review every 5 years, at which they double the rent. It’s easy to see how the cost of ground rent can rack up quickly.
There’s no legal limit as to what level ground rent can get to, also furthering the problem of escalating ground rent, making it become unpayable.
What is being done about the ground rent scandal?
It has been estimated by the Leasehold Knowledge Partnership that at least 100,000 property owners are seeing their ground rents escalate unfairly, so it’s no surprise that there has started to be some kind of action taken against it.
Some of the country’s most popular development companies signed a government-led pledge. They agreed to:
No future leases can include doubling ground rent clauses
The ability for existing leaseholders to be able to purchase the freehold with ease
All leases will contain clear information on the cost obligations associated with the leases before it’s signed
Make contact with affected leaseholders and alter the clause, so any increases will be in line with inflation
Leaseholders will be assisted when they approach developers requesting for a review of the doubling clause in the lease
In 2019, it was also announced that leasehold properties would no longer be sold, and developers can therefore no longer charge ground rent.
The Competitions and Markets Authority (CMA) is investigating the misselling of leasehold properties, with Barratt Homes, Persimmon Homes, Countryside Property and Taylor Wimpey put under scrutiny.
Whilst these are all steps in the right direction, it doesn’t help those who have been affected by the ground rent scandal and are stuck in a position where they can’t afford the ground rent but are also struggling to sell.
And that takes us perfectly onto…
Affected by ground rent scandal: how do I sell?
If you’ve been affected by the ground rent scandal and now have extremely high ground rent which only looks like getting more, you may have decided it’s time to try to sell your property before it gets more out of control.
Naturally, it’s going to be hard to attract buyers with a high ground rent charge, meaning you may have to think outside the box to sell, rather than just putting your property on the open market with an estate agent…
Buy the freehold
Firstly, you could try to buy the freehold. This could be an option for you for both wanting to stay in the property or to make your property more appealing to potential buyers.
Buying the freehold will mean that you now own the property and the land completely, which will result in no more ground rent. This will be beneficial for you whilst you live in it and will also help when it comes to attracting buyers.
However, buying the freehold isn’t as straightforward as it may seem…
If you’re living in a flat, you will need at least 50% of the building’s flats to take part in the buying of the freehold. You must also meet the following criteria:
Current lease must have at least 21 years left
Mustn't be a commercial lease
If living in a flat – building must contain at least 2 flats
Building mustn’t be a charitable housing trust, national trust or cathedral precinct
There are also two routes that can be taken when buying the freehold, a formal and informal route. Following the formal route will prove more costly but offers more protection to you as the leaseholder as all parties must follow strict rules and timescales set out by law.
Through an informal route, there are fewer costs, and the leaseholders are able to go to the freeholder directly and ask if they want to sell the freehold. If the freeholder agrees, then negotiations can begin. If the process is to fall through, leaseholders are then able to go through the formal route.
The cost of buying a freehold can be anywhere from £5,000 to £10,000+, depending on the length of time left on the lease. You will then have to pay legal fees, estate agent costs and other costs associated with moving house on top of this when it comes to selling it.
Find a cash buyer
Your other option when it comes to selling your property after being affected by the leasehold scandal is to find a cash buyer. With most leasehold properties with high ground rent, house repayment lenders refuse to lend, meaning most buyers don’t have the funds to buy the properties.
However, if you find a cash buyer on the open market, whilst they won’t need funds to purchase the house, they’re still unlikely to want to buy a house that has high and escalating ground rent.
BUT it’s not all bad news, as we know a cash buyer who will be happy to take your property off your hands, and isn’t worried about high escalating ground rent…
This is where we step in!
We will buy your property for cash and take the stress of selling a property affected by the ground rent scandal off your hands. Not only will we give you cash for the property, but we will also cover all the fees, leaving you without a single penny to pay.
We’re not like your average house buyer, we buy any property in any condition, meaning we won’t be put off by a high ground rent charge. We’re also able to complete in as little as 7 days – taking away your ground rent scandal selling fears in as little as a week!
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Been affected by the ground rent scandal and struggling to sell? Give us a call or fill in our online form for a no-obligation, cash offer which we could have in your bank FAST!