Leasehold Doubling Clauses: what are they and where you would find them
As a leaseholder, you will be aware of the annual ground rent charge that you are required to pay to the freeholder of your home. This may be due to your conveyancer pointing this out to you before the point of sale, or alternatively, by the letter demanding payment falling onto your door mat some time later. However, an element you may not have been made aware of is the way in which this sum is set to increase periodically, affecting your ability to sell your home on in the future.
There are a variety of ways in which these ground rent clauses can increase. For example, it may increase by 10% every 25 years, by a calculation that rises with the Retail Price Index or it may in-fact double every 10, 15 or 25 years.
It is these doubling clauses that are being snubbed by a number of mortgage lenders, such as Nationwide and Santander (correct as of June 2018). Ultimately, lenders are not prepared to provide a prospective buyer of your home the funds needed, leaving you unable to sell your home.
To understand if your property is subject to a ground rent clause that is set to double, you will be able to identify this within your lease document. Every lease is different; however the element you will be looking for should display similarly. Within the lease document there will be a Definition and Interpretation section, that defines key terms within the document. Here, you should look for “Rent” or “Ground Rent” and the clause will be displayed either expressly, in a numbered format:
or, more difficult to identify, impliedly by the wording. An example being “The rent will be set to increase by 100% on the twenty fifth anniversary of the commencement of term”
If on examination of your document, you do identify an onerous doubling clause, do not panic. We may be able to help. We understand that your decision to purchase your home may have been different if you had been made aware of this clause and its wider implication by your solicitor at the time of sale. In law, there is a great onus put on a contracting party to communicate and identify onerous terms, as it is said metaphorically by Lord Denning ‘it should be in red ink with a red hand pointing to it.’ If you feel that this was not the case for you, you may have a claim for professional negligence and we would be happy to discuss this further with you