Ground Rent increases are a hot topic at the moment; and some leaseholders have had a deed of variation offered to them by their freeholder. Anne Albritton looks at how deeds of variation can be used to vary ground rent.
What is a deed of variation of a lease?
A deed of variation of a lease is a contract which details any agreed changes to the terms of a lease. The Deed usually requires both freeholder & leaseholder to be in agreement of the changes, but can sometimes require the approval of a third party such as a lender depending on the circumstance.
If ground rent gets too high, a leaseholder may want to introduce a deed of variation in order to ensure that future increases of ground rent are reasonable. Especially considering that lenders will not lend against a lease with sky-high ground rent.
How does a deed of variation change ground rent?
A Deed of Variation allows the parties to delete, add a new clause or change the wording of the clause in the lease referring to the ground rent. It is a legally binding contract that records agreed changes to the amount of ground rent in a lease.
My freeholder has offered me a deed of variation to vary my ground rent – What should I do?
A number of property developers in England pledged to assist leaseholders by entering into ‘Deeds of Variation’ to vary the ground rent terms in their leases from doubling ground rents to RPI-linked (inflation) ground rents.
In theory at least, RPI-linked ground rents should result in smaller increases in ground rents than doubling, which is more attractive to mortgage lenders and future purchasers; see our related article on Ground Rent Concerns.
How to reduce ground rent
Our specialist Leasehold Property Team here at Frettens have assisted numerous leaseholders with such Deeds of Variation and have even gone on to assist, in some cases, with Statutory Lease Extensions to get their ground rents down to zero all-together (known as a ‘peppercorn’); as a RPI-linked ground rent should result in a lower premium being payable for a lease extension than if a doubling ground rent exists.
Why should I have a deed of variation?
A deed of variation could significantly reduce the amount of ground rent you need to pay over time. This could make your property more attractive to buyers should you want to sell in the future and mortgage lenders should you wish to refinance.
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