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Escalating Ground Rent Explained

Escalating ground rent clauses in leaseholds are now a major issue on re-sale and remortgage.


Your leasehold matter will grind to a halt and you will need to fund a suitable indemnity insurance policy or arrange a Deed of Variation with the freeholder. Both will cost you but there is no way around this as lenders will not lend.


Your conveyancer will deal with obtaining indemnity insurance or the necessary Deed of Variation for you. There will be additional fees involved for this extra work.


What Are Escalating Ground Rents?

Historically we have seen higher ground rents introduced alongside escalation clauses (ground rent reviews). These cause the ground rent to increase or escalate, sometimes doubling very quickly. The ground rent can escalate to thousands of pounds in a relatively short period. The result is financial distress to leaseholders who struggle to sell properties. Lenders do not like these escalating ground rent provisions either as it affects saleability so the property is less attractive as security for the mortgage.


Where ground rent exceeds £250 annually (£1000 p.a. in London) a lease may, due to the Housing Act 1988, be classed as an assured shorthold tenancy (AST). If the lease is classed as an AST, the leaseholder is vulnerable to a mandatory Ground 8 possession order if the ground rent falls into arrears for three months. If the lender were to repossess they are also affected.


A court will have to grant to the landlord a possession order on request.  This means that not only does a leaseholder face losing their home, they will also forfeit any purchase price paid at the time of acquiring the property. Lenders taking repossession proceedings will face losing their security (I.e. the property).


As a result escalating ground rents have an adverse effect on both the mortgage-ability and saleability of leasehold properties.


There has been widespread criticism of the conveyancing profession over escalating ground rents. However, these were considered normal and acceptable until relatively recently (approx 2018).


Blame your conveyancer

It is worth noting that the nature of standard practice and current conveyancing procedure is that it changes over time. Perceptions change. Case law reveals issues and practice evolves. Unfortunately Conveyancers are an excellent scapegoat.

See below posted on LinkedIn in support of a beleaguered profession. Bear in mind that the legal profession only does what it is instructed to do by its clients and developers for example requested such ground rent terms.


Blaming conveyancers




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