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United Kingdom: Leasehold Rip-Offs: The problem of onerous ground rents

(PresseBox) (Berlin, ) There has been much media concern in the UK recently over onerous ground rent provisions in long leases. Attention has focused on ground rents that are initially modest, but which double after a certain amount of time, and then double again, and again, till the end of the lease.

Rents which double every 25 or 50 years have been relatively common in newly built properties since the 1990s, but the current concern centres on ground rents that double as often as every 10 years. On that basis, if a lease has an initial ground rent of £250 p.a., then after 60 years, the leaseholder will be obliged to pay £16,000 every year. This would not only place a huge financial burden upon the leaseholder to meet the ground rent, but it would also make the property virtually unsellable, as the ground rent will only increase as time goes on.

The British government has issued a consultation paper, “Tackling Unfair Practices in the Leasehold Market”, dealing with this and other areas of proposed leasehold reform. The Ecovis team of experts has been able to determine that the consultation paper proposes limiting the ground rent payable under all new leases – with just a few exceptions - to a ‘peppercorn’ (i.e. effectively zero) for the whole term of the lease. It does not, however, contain any proposals for assisting home owners who are already burdened with onerous ground rents (although it invites suggestions on how this issue could be tackled). So what options are currently available?

There are a variety of potential avenues open to leasehold owners burdened with onerous ground rents, including compulsory purchase of the freehold, professional negligence claims, mis-selling claims and complaining to the Legal Ombudsman; the most appropriate option will depend on the circumstances. This article focuses on the option of professional negligence.

The leaseholder may want to consider whether they received proper advice from their conveyancing solicitor when they purchased the property. If they did not, then they may have a claim for professional negligence. Ecovis lawyers comment that, although it is not the job of conveyancing solicitors to advise their clients on whether the ground rent set out in the lease is ‘fair’, solicitors should check what the ground rent clause says, bring it to the attention of their client, and make sure that their client is aware of the long-term implications of the ground rent provisions.

The first step for anyone who feels that they may have a potential professional negligence claim is to check what information they were provided with by their solicitor when they purchased their leasehold property. In particular, they should look at the report on title that their solicitor prepared for them: does it say anything about ground rent? If not, then the solicitor may have acted negligently.

If the purchaser simply did not read the report on title properly, then the solicitor may be able to argue that they have not breached the duty that they owed to their client. However, if the ground rent provisions were exceptionally onerous – as onerous as the ten-year doubling up example mentioned above for example – the solicitor is arguably under a duty to take extra care to flag it up.

Author:
Esther Millard, Senior Associate, Ecovis UK Legal Barlow Robbins LLP
EstherMillard@barlowrobbins.com.

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ECOVIS AG Steuerberatungsgesellschaft

Ecovis is a leading global consulting firm with its origins in Continental Europe. It has over 5,000 people operating in over 60 countries. Its consulting focus and core competencies lie in the areas of tax consultation, accounting, auditing and legal advice.

The particular strength of Ecovis is the combination of personal advice at a local level with the general expertise of an international and interdisciplinary network of professionals. Every Ecovis office can rely on qualified specialists in the back offices as well as on the specific industrial or national know-how of all the Ecovis experts worldwide. This diversified expertise provides clients with effective support, especially in the fields of international transactions and investments - from preparation in the client's home country to support in the target country.

In its consulting work Ecovis concentrates mainly on mid-sized firms. Both nationally and internationally, its one-stop-shop concept ensures all-round support in legal, fiscal, managerial and administrative issues.

The name Ecovis, a combination of the terms economy and vision, expresses both its international character and its focus on the future and growth.