November 21, 2016

Buyers beware: leasehold and ground rent trap

Posted in Property Disputes

You may have seen coverage in the press recently of the plight of unsuspecting new build buyers caught out by onerous ground rent review clauses. The seemingly affordable ground rent required by some long leases has the potential to escalate over time, leaving some leasehold owners unable to sell.

Developers are increasingly selling new build houses as leasehold instead of freehold, with some ground rents doubling every 10 years. As a result these owners are liable to pay ground rent to the freeholder that will spiral to thousands of pounds a year.

Many owners have become stuck with properties they are unable to sell as some banks are unwilling to provide mortgages to prospective buyers if the lease provides for a dramatically escalating ground rent.

Developers are also selling long leases with the possibility of flat owners purchasing the freehold at a relatively low cost after only a few years. This may seem reassuring but many owners have discovered that when the time comes to purchase the freehold, it has either been sold to a third party without their knowledge or they are only able to purchase the freehold for a disproportionate sum.

It is therefore essential that you understand the ramifications of purchasing a long term lease, the possibility of purchasing the freehold and the costs involved before committing yourself to any purchase.

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