Ground Rent Increases – Preparing Your Leases
Most leases are drawn up with specific ground rent increases that will occur over a period of time. We can safely say that if you are selling a recently built block of apartments where the leases are 999 years and the lessees are in charge of their own management you should consider getting a new solicitor or having a word with the person that drew up the leases. A 999 year lease is only attractive to a leaseholder and not to a ground rent investor.
Steer Clear of 999 Year Leases
These types of leases are very good from the lessees point of view from the leaseholders point of view particularly if there are no ground rent increases but they are of no interest to ground rent investors. A ground rent investor will derive very little income from this type of lease and there is no chance of them ever getting a lease extension. A block of 999 year leases with no ground rent increases where the lessees look after their own management is worth less that half of what it could be. It will be very difficult to sell them to anybody as they are unattractive from an investors point of view.
There are ways to draw up a lease that will in no way inhibit your chances of selling the individual flats and advice should be sought before the leases are created. Of course if you are not interested in the value of the freehold then go ahead with the badly drawn up lease but it does not make financial sense.
125 Year Leases
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A lease that is drawn up for 125 years with ground rent increases every 25 years are pretty standard with the freeholder being able to appoint their own managing agents to look after the block. The building should also be insured by the freeholder or he should have complete control over the insurance arrangements. These are standard clauses to have inserted in the lease and the flats will be as easy to sell as if they were drawn up with 999 years.
Ground Rent Increases
Help & Advice
We would be glad to help you if you are selling your ground rents now or in the near future.
The ground rents should double every 25 years as this will keep up with inflation. A good starting point for the ground rent income would be £250.00 per annum but this would be increased if the flats were in central London.
There are lots of fantastic calculations that some solicitors put in leases that really need to be read by a mathematician so make sure you know what they mean before you sign up.