Leases usually contain an obligation on leaseholders to pay ground rents to the lessors. It is not uncommon for ground rents to be paid annually and subject to a rent review clause, which can increase the annual payment of ground rent.
It has been reported that some “onerous” ground rent review clauses have resulted in leaseholders being unable to sell their properties due to the rent increasing to a level where mortgage providers are refusing to offer mortgages. This has left some leaseholders stuck in their properties.
Eddie Hughes (MP for Walsall North) has proposed a private Member’s Bill in the House of Commons on the 25th June 2019. The Bill seeks to tackle situations where leaseholders are stuck in their properties by onerous rent review clauses.
The Bill is aiming to create an obligation on lessors to grant a quick and simple lease variation to leases and a mechanism to cap ground rents at the lower of £250 per annum or 0.1% of the value of the property. Further, there is going to be consideration of whether the original developer should foot the leaseholder’s legal bills, presumably for this process.
The Bill is in its infancy and it will be interesting to see how it progresses. If the Bill proceeds to law and incorporates some of its aims, then it will need to be drafted with careful consideration as to the relevant mechanism for establishing what the value of the property should be, in order to accurately work out how much 0.1% of the value of the property is. Without careful consideration of the drafting, then disputes may arise.
Additionally, if the original developers are to be liable for the legal costs of the leaseholders, then there needs to be consideration for the situation where the original developer has been liquidated. Would another party such as the lessor have to pick up the legal costs? It will be worth monitoring this Bill closely if you own a lease with onerous ground rent review clauses.