Beware 'excessive' ground rent clauses, conveyancers told
Trade body calls for leasehold reform as Law Commission considers review
Conveyancers must be alert to onerous ground rent clauses in leasehold properties, experts have said, amid calls for greater protection for practitioners and consumers.
Last month, Guardian Money revealed that conveyancers and solicitors are at risk of professional negligence claims by failing to properly inform clients about the clauses. In what has become a country-wide problem, the clauses, contained in housebuilders’ policies, typically impose ten-year doubling ground rent, leaving buyers with the choice of paying higher fees and seeing the property’s value decrease, extending the leasehold, or buying the freehold.
A spokesperson for the Council of Licensed Conveyancers stressed to Solicitors Journal the importance of practitioners explaining lease terms accurately to buyers. ‘Excessive ground rent rises are very hard to justify. It may be that a change in the law is needed to eradicate entirely profiteering by unscrupulous freeholders. Conveyancers can play their part by highlighting such lease provisions to potential buyers and advising them against purchase of the property until a reasonable scheme of ground rent rises is put into place by the freeholder.’
Beth Rudolf, director of delivery at the Conveyancing Association, and Louie Burns, managing director of Leasehold Solutions, told Solicitors Journal the steps practitioners and firms should take to protect themselves.
‘We would recommend to all our members that they check very carefully any rent review clauses and where there is a formula then to run the formula to ensure that the increases in ground rent would not be onerous on the leaseholder,’ said Rudolf, ‘and to advise a buyer of any and all rent reviews and what that might mean to them in terms of mortgage ability.’
‘Firms need to educate themselves,’ added Burns, who suggested they could caveat any repercussions by making their client aware of the high ground rent, confessing their lack of expertise in the area, and recommending independent valuation advice prior to purchase. He also expressed sympathy for conveyancers and solicitors who, without specialist valuation knowledge, struggle to explain and understand the full impact of the clauses.
However, Rudolf said she was confident that her members routinely advised buyers of the main issues and that the association’s greatest concern was that no obligation existed on the lease administrator to provide the leasehold information within a reasonable time.
‘The Commonhold and Leasehold Reform Act goes some way to requiring that the fees for the provision of information should be reasonable but there is no form of redress other than through the First Tier Tribunal,’ she said. ‘What we want to see is the Act amended to provide for the information within a timely fashion and at a reasonable fee. Additionally, we would like to see the Land Registry compiling a compulsory register of lease administrators so that they can be quickly and readily identified.’
Burns went further and called for leaseholds to be scrapped entirely. ‘The easiest way to reform this is to make no other properties that are built leaseholds and the market would eventually connect itself.’ Rather than attempting to change legislation bit-by-bit, Burns envisaged that all properties could eventually become freeholds through enfranchisement.
The Law Commission is aware of the problems posed by ground rent clauses and told Solicitors Journal it was contemplating a review. ‘Concerns about escalating ground rent are one of many issues in leasehold law that have been raised by stakeholders in our recent consultation on our next programme of work. We are considering whether to conduct a review of these issues as part of our next programme, and will be discussing that with government.’
The topic of ground rent will be discussed at a meeting of the All Parliamentary Party Group on leasehold and commonhold reform on Wednesday 14 December.
Matthew Rogers is a reporter at Solicitors Journal