The Modern Ground Rent Time Bomb

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Lee Dawkins, a Professional Negligence solicitor, looks at the worrying problem of Modern Ground Rent provisions under the Leasehold Reform Act 1967 and the legal redress available to unwitting purchasers faced with sky high rent increases.

Slee Blackwell’s professional negligence department has recently been retained to deal with several professional negligence cases involving long leases of National Trust property in Devon that have been extended under the Leasehold Reform Act 1967.

The 1967 Act contains a provision allowing landlords to charge an enhanced ground rent, called a modern ground rent, where leases have been extended under the Act. Rents can rise from just a few pounds a year to thousands of pounds. For the unsuspecting purchaser this can result in financial disaster.

Solicitors and surveyors familiar with the Leasehold Reform Act will be aware of this provision and will alert their clients to it. However, not all conveyancers and surveyors are live to the issue and as a result many people have purchased leases blissfully unaware of their future liability for modern ground rent.

The leaseholder’s liability for modern ground rent arises where they, or a previous tenant, have exercised their right to extend the lease under the Act by 50 years. The extension gives the tenant the comfort of a longer lease, but once the period of the extended lease begins the onerous modern ground rent obligations kick in.

Defending its position to charge the modern ground rent where it arises the National Trust points out that the Leasehold Reform Act included this provision in order to strike a balance between the competing interests of landlords and tenants. Nevertheless the National Trust has acknowledged that some of its tenants might be unaware of the provision and may be taken by surprise.

The modern ground rent is calculated as a proportion of the full rental value of the property. This is known as the site value and is the estimated value of the site on which the property is situated. Therefore a property that’s worth £300,000 could have a site value of £105,000, based on 35% of its total value. The modern ground rent is calculated on a de-capitalised basis, so in this example it would be £5,250 per annum. It is easy to see why this is causing so much consternation for tenants who had purchased their property on the basis that the ground rent would remain at its original modest level of just £10 or £50 per year.

Tenants of National Trust properties in Devon have been given the option of making a one-off, lump sum payment to buy out their future obligation to pay modern ground rent. This payment is based on the annual modern ground rent payable and the date upon which the first payment becomes due. However, few property owners have the funds available to make such a hefty payment.

Anyone facing a liability for modern ground rent or contemplating making a lump sum payment should look closely at the quality of the professional advice they received when they acquired their lease. If it is likely that the solicitor, conveyancer, surveyor or valuer should have known about the liability for modern ground rent, then their failure to draw this to the purchaser’s attention is likely leave them open to a claim for compensation for professional negligence.

If you are worried about liability for modern ground rent then call us on 01823 354545 and speak to Lee Dawkins about making a claim for compensation on a No Win, No Fee basis. Alternatively you can e-mail Lee direct at [email protected]

More information about making a solicitors negligence claim can be found on our specialist website at www.proneg.co.uk