Over the past few years there has been a growing number of cases of leasehold property owners seeking recourse against their conveyancing solicitors due to a clause in their lease whereby ground rent doubles every few years.
Whilst this may not be too onerous in cases where ground rent is minimal, in cases where annual ground rent is higher, the consequences can be extremely expensive.
Consider a lease where the ground rent is £500 per annum. If the ground rent doubles every ten years (as is not uncommon in some leases), by the time a 99-year lease reaches its final nine years, the annual ground rent would be £256,000 per year!
Whilst it is unlikely that a leaseholder would remain in the same property for the duration of a 99-year lease, having a clause in the lease where ground rent doubles every ten years will make the property extremely difficult to sell or remortgage. Indeed, many lenders will not lend money against properties with these types of clauses in their leases.
The trend for including doubling ground rent clauses in leases has been seen more recently in many new residential developments, and some of the UK’s major house builders used to include them in leasehold properties they offer to the market.
The Leasehold Reform (Ground Rent) Act 2022
As a result of this trend, the government introduced the Leasehold Reform (Ground Rent) Act 2022, which came into force on 30 June 2022 and put an end to ground rents on long residential (at least 21 years) leasehold properties in England and Wales. As such, freeholders on such leases can now only charge a maximum of one peppercorn per annum (in essence, zero rent).
The Competition and Markets Authority (CMA) also investigated the practice and contacted many of the UK’s leading developers, who agreed to work with the CMA to remove the doubling ground rent clauses from their existing leases. These developers have said that the ground rent will remain at the same level it was when the property was first sold and will not increase over time. Further guidance as to which developers have provided the CMA with such undertakings can be found here.
Pursuing a professional negligence claim
Unfortunately, there will still be many hundreds, if not thousands of leaseholders who have leases on older properties that are not covered by one of the above schemes, and where the freeholder is not prepared to amend the ground rent provisions without charge.
However, those leaseholders may still be able to pursue a professional negligence claim against their former conveyancing solicitors, if the solicitors failed to identify such a clause within the lease and properly advise the purchaser before they bought the property. Solicitors are also under a duty to advise mortgage providers of any ground rent increases that may be unreasonable.
Indeed, with older properties, which may already be over 50 years into a 99-year lease by the time a person purchases it, the ground rent could have already been doubling every ten years for the last 50 years prior to their purchase, meaning that what was a £500 per annum ground rent at the start of the lease, is actually now a £16,000 per annum ground rent.
Amending the terms of your lease
In order to amend the terms of the lease (to remove or change the ground rent clause), freeholders will often demand a premium representing their lost income. Such a sum will normally be determined by a surveyor who will take into account the annual ground rent, the number of years left on the lease and any other onerous terms of the lease. The surveyor may also look at how much it would cost the leaseholder to either extend the lease (and remove the onerous ground rent clause at the same time) or how much it may cost to purchase the freehold of the property (if appropriate).
If the conveyancing solicitors have been negligent in their duty to the purchaser, then it may be possible for the purchasers to recover the above sums from the solicitors as part of the professional negligence claim, together with any other costs associated with amending or extending the lease in order to remove the onerous ground rent clause.
In summary, leaseholders should carefully check the terms of their leases to see if they contain such onerous ground rent clauses. Often, the first time they become aware of these ground rent clauses, can be on the first anniversary of the ground rent doubling. Depending on the circumstances of your case, it may be too late to bring a claim against your solicitors, so it is advisable to check your lease sooner rather than later.