From 11 May 2017 Nationwide announced that it would no longer be lending to new build properties with unreasonable ground rents. Unreasonable ground rents being those that double every 5, 10 or 15 years. Instead, they will only lend to those with ground rents limited to 0.1% of the property’s value. This is because they believe it is in their customer’s best interest to avoid unfair lease terms which will later effect the salability of their property.
With Nationwide leading the way with this new lending criteria, it will no doubt inaugurate a butterfly effect with other lenders following suit and changing the market perception of what constitutes an onerous ground rent.
If, as we suspect, most other mainstream lenders do adopt this new criteria on lending, this will open the floodgates on claims for existing leases under the Leasehold Reform, Housing and Urban Development Act 1993 to force the removal of onerous ground rents with landlords receiving considerable premium payments and professional costs for the loss of ground rent.
It will eventually force developers granting new leases to reevaluate their terms when drafting new Leases, Deeds of Variation and Deeds of Surrender and Re-Grant. This is good news for leaseholders or those wishing to buy new build leaseholds but perhaps not such good news for freeholders that rely on large ground rents as a source of income.
There was a recent case of Taylor Wimpey including a ground rent clause in a lease starting at £295 per annum and doubling every 10 years. This would mean in 50 years the ground rent would be £9,440 per annum which is totally unreasonable. So we can see why Nationwide have brought in this restriction as ground rents cannot go on like this.
Nationwide have also stated that they will not lend on new leasehold properties with less than 125 years on the Lease. In the past, most leasehold properties have started with 99 years so this is obviously another big change that freeholders will have to take into account when drafting new Leases.
If you are a leaseholder that already has an unreasonable ground rent there is still a way out of this. You can serve a Section 42 Notice on your freeholder under the Leasehold Reform, Housing and Urban Development Act 1993 to extend your lease by adding an additional 90 years and removing the ground rent entirely. Even if you do not urgently need your lease extended it is still a way to remove the unreasonable ground rent clause and if you have a long lease then the premium would not be too high anyway.