Advice about ground rent (local average costs)

[rye_lass]

We're in the process of buying a flat, very close to exchange, and have only just been informed of the associated leasehold costs, which seem quite high.

The lease is new 125years and owned by the vendor. The ground rent starts at ?350p/a and doubles every 25 years. In addition all of the freeholder's building maintenance costs are expected to be covered by the owners of the flats, not the freeholder.

Is this the norm for this area? Would be really useful to know if other leases are under similar terms.

Thanks!

[ianc]

(I used to manage the freehold that we shared between 3 flats in a Victorian building, up until I sold in 2011. So we were both joint freeholders and leaseholders).

It is normal for leaseholders to pay the cost of maintaining the building to the freeholder. But what you should expect is a thorough explanation of those costs from the freeholder, so that you can make sure the work has been quoted for fairly and the freeholder isn't hiking up the price. I'd expect to see estimates/quotes from whichever tradesmen did the work.

If you are close to exchange, your solicitor should already have asked the freeholder for details of recent and upcoming work, if any is planned, so you can see the potential scale of it. Your survey should also give you an idea of whether anything major needs correcting, such as the roof or re-pointing of brickwork. People often underestimate the need to look after and maintain a building, particularly if it is, say, Victorian. But it needn't be a scary prospect if the freeholder and leaseholders are interested in doing that :-)

I think that ground rent sounds fair, and it's normal to have a schedule stating how it increases over time.

If you're concerned, your solicitor should also be able to explain the above in more detail, and perhaps let you know if the freeholder stated that any major maintenance work is foreseen in the next few years.

[Lowlander]

Ground rent sounds high but not excessive (the acid test is are you happy - as can be - to pay it, given the price of the flat?)

One the maintenance side, if you come across a place which is cost free to maintain let us know :-) so yes that's normal.

As inanc says, your solicitor should be advising. Who pays the buildings insurance? Is there a service charge or sink fund?

[Mutrik]

We paid ?150 ground rent p.a. For our flat. Not sure how often the rent changes though.

Part of the service charge we paid went to fund external building works/ maintenance.

Definitely find out if there is a service charge, any current funds and if the place has quite a few flats and being looked after by a management company, check the general state of financials, just ask for the annual accounts.

[Jeremy]

Ground rent sounds fairly normal.

It is also quite normal to pay maintenance yourselves - unless you are paying a service charge to cover such things. As Mutrik says, confirm that this arrangement is INSTEAD of a service charge, not in addition to it.

[Alexx]

I would say they are pretty standard terms for a new lease when buying a flat in this country, let alone this area. Not long ago 99 years was the standard length for a lease. Also you have to think in 25 years ?350 is not going to be near the value it is today.

As said above it is standard for the lessee to pay a set share of the maintenance cost for the building, though various acts mean that freeholders can't just charge what they like. Biggest things to look out for is proof of costs for any work done, for example written quotes and copies of final invoices. I would really recommend reading up on section 20 notices which prohibits the freeholder in making large costs (?250 a flat) without formal consultation from the leessees.

If you have a difficult freeholder sometimes the easiest thing to do is take over the management. You will have a right to manage the building along with the other lessees, or elect a management company. Again if at least 50% of you team up you also have the right to buy the freehold. This website is very helpful and will go through it all www.lease-advice.org/

I have seen management companies get away with murder, but only because a lot of people are happy to pay their service charge without question. The thread on Southwark Council service charge costs re. contractors charging for work not carried out is a real eye opener. On the other hand your freeholder might be really nice and fair which isn't unheard of!

[rye_lass]

Thanks everyone - that's pretty reassuring. A few pieces of information, like this, had frustratingly been withheld until the last minute so we were really wanting to check that they weren't trying to hide unfair costs - which it sounds like they're not. We'd expected to pay maintenance costs but had assumed the ground rent would be lower.

Our solicitor is great, but not London based, so wanted to check local info.

Some useful advice too - especially about checking upcoming work and taking over the management, cheers.

Fingers crossed this will be the last surprise before we exchange...

[worldwiser]

Best way is to force the freeholder to sell you the Freehold once you own the flat. You need 50% of the current leaseholders to force it through under collective enfranchisement: with a long lease such as yours it should be relatively inexpensive compared to the peace of mind it will bring and the added value to your property. We've done it twice in the past and collectively saved ourselves and neighbours thousands on bogus or unnecessarily complicated maintenance work and ultimately gained total control of the buildings. Freeholders are a historic anachronism and they shouldn't exist anymore.

[ianc]

I found it useful, in a 3-flat building, even just to have the concept of a shared freehold because otherwise it's hard to suggest to, say, the middle flat that they have a shared obligation to chip in an equal share to repair the roof, or the foundations. Without some form of notional "owner" of the building, people often want to maintain just their own flat, but not common parts or the infrastructure of the building.

Just my 2p after being a shared freeholder. It can actually help, rather than hinder good maintenance. But, as worldwiser says, this probably works best after you've collectively bought the freehold :-)

[acresser]

We have a really low ground rent but then have to pay ?250 a year on top for insurance - double check whether your ground rent covers that or whether it's an additional cost that's not been made clear.

Good luck with the purchase!

[womanofdulwich]

You could go back to your valuer and ask if the ground rent means the flat is worth less than their valuation.

[StraferJack]

"Just my 2p after being a shared freeholder. It can actually help, rather than hinder good maintenance."

yep, I agree with this. But not unconditionally

Had 1 flat in a 5 flat house in Friern Road and teh arrangement worked pretty well. But what started to happen over several years was that most of the other flats became tenants rather than the owners. And they were lovely tenants - but communication about what needs to going to the overall building gets lost.

Plus the owner who would spend so much time persuading me to do x or y work just a year earlier became less interested when he no longer lived there (even tho it was still their responsibility)

Communal Hallways were a main bugbear - people who lived on ground floor don't want to spend a dime on the main stairs/landing on the other 2 floors

[Mellors]

I do all my new leases at work at a ground rent of ?250 a year, 125 year leases, but ?350 isn't unusual. Contributing to maintainance is normal, but do check re sinking funds/proposed works/get past years accounts etc.

[Jeremy]

At least if you're paying/arranging maintainance yourself, you know the landlord hasn't awarded dodgy contracts to his mates at an inflated price.

[gsirett]

ground rent sounds about right.

However, that is the one area where the freeholder (or their agent) cant rip you off(as its written in the lease)

Watch out for OTT building & management costs - these can be genuinely higher than you expect (remember, you own a share of the building now - and new roofs aren't cheap) but they can also be used to fleece you.

best bet is to look back through prevoius years accounts to see whats being spent and then cross refeence that against the state of the building

[AbDabs]

Jeremy Wrote:

-------------------------------------------------------

> At least if you're paying/arranging maintainance

> yourself, you know the landlord hasn't awarded

> dodgy contracts to his mates at an inflated price.

The trouble is that if you're paying the maintenance yourself it only works if everyone wants to pay up. It can be a real problem if one of the residents decides they can't or won't pay. You may feel sorry for an elderly neighbour's apparent poverty but if the roof needs replacing it gets pretty expensive to pick up their share as well. Even worse if you need access through their flat to do work and they won't let you in. Going to court takes up a huge amount of time and effort and its not pleasant doing that to someone you'll continue to live next door to. I'd rather pay a few inflated bills (within limits) and let the landlord have the hassle.

[Jeremy]

Good point I guess. The residents could always arrange their own sinking fund? But I guess the same problem applies if someone doesn't agree to do that.

[Medley]

> The lease is new 125years and owned by the vendor. The ground rent starts at ?350p/a and doubles every 25 years. In >addition all of the freeholder's building maintenance costs are expected to be covered by the owners of the flats, not the > freeholder.

That sounds very high to me. Depends what you mean by maintenance costs, but if it's normal level service charge plus that ground rent then that's a lot.

Points by others about collective enfranchisement are well made.

Beware using a non-London solicitor if they're not familiar with leasehold issues.

[fazer71]

> The lease is new 125years and owned by the vendor. The ground rent starts at ?350p/a and doubles every 25 years. In >addition all of the freeholder's building maintenance costs are expected to be covered by the owners of the flats, not the > freeholder.

Sounds cheap a friend just bought a 2 bed in Brixton and ?450 p/a ground rent.

If you can buy the freehold. Then it won't matter.

[ianc]

StraferJack Wrote:

-------------------------------------------------------

> Communal Hallways were a main bugbear - people who

> lived on ground floor don't want to spend a dime

> on the main stairs/landing on the other 2 floors

Totally agree on that! I was the top flat, of 3, and persuading the other 2 that they were responsible for a third of the costs of not only the communal hallway, but the expensive (and aging) roof too, was torture at times. But I quoted the lease and freehold documents to them, and the clauses on their obligations, and they started to realise *we* were responsible. But I agree, it can be a battle to keep everyone onboard.

[monica]

I pulled out of buying a leasehold, before I purchased my share of Freehold, because of the amount of clauses attached to the leashold, and the prospect of the decreasing leashold, over the years. With the leashold I went as far as Solicitor sending me the draft lease, then seeing the 2 pages of clauses. I would look into seeing if there is a prospect of buying the freehold.

Good luck

[rye_lass]

Thanks again for your responses - so helpful.

We found out today that sevice charge is also ?350 per year - so ?700 total. Feels quite bonkers but given the market we think we probably have to suck it up - the flat has probably increased in value since we put in our offer anyway.

Will definitely be looking into taking over the management and possibly buying the lease.

Ta ED folk...

[Pugwash]

My Mother in Law converted her very large house to 3 flats and one 4 bed flat was on a long lease. The leaseholder had to pay yearly a percentage of the house insurance (it was based on the area/cubic capacity of the flat), plus the same percentage towards any building or repairs to the external building and garden, plus there was a clause about hanging out laundry, also that the leaseholder was responsible for cleaning the stairs and hallway leading to their flat on a monthly basis. She frequently had to threaten legal action to get her money - cannot remember what the ground rent was - high as in west Dulwich