Homeowner to seek legal action over £1m a year ground rent charge for one-bed London flat

Carole Patterson is one of a number of buyers who say their solicitors failed to tell them about costly contract clauses

When Carole Patterson bought her one-bed flat in south London a decade ago she had no idea the purchase would become “a total nightmare”, she says.

The single mother only became aware in 2018 that the contract for the £170,000 property states that her annual ground rent – a charge paid to the freeholder of the land – will double every five years.

Her bill is currently £1,050 this year, meaning that in 50 years’ time she would have to pay £1,075,200 a year, rising to half a billion pounds in 100 years’ time.

The 44-year-old is one of a number of buyers who are taking legal action against their solicitors who they say failed to tell them about the costly clauses in their leasehold contracts.

There was an outcry a few years ago when it emerged some buyers found themselves with spiralling ground rents. Some landlords have sold on their leases to external third party companies which charge extortionate rents, with no means of escape.

This has left many with unmortgageable homes, and owners unable to move and facing hefty bills.

‘I fear my home is worthless’

Carol, an HR administrator, says she only became aware of the problem with her lease in 2018 when the freehold was bought by MEA Real Estate Ltd and she received a letter about the raising costs.

She said other residents in the building, in East Dulwich, do not have doubling ground rents, likely because their solicitors noticed the clause and had it taken out.

The freeholder offered to amend the terms of the lease for a one-off payment of £100,000 – around a quarter of the estimated current value of the property.

The Government launched an investigation into the scandal in 2017 and in January this year ministers proposed new reforms to crack down on the practice. Research by Propertymark found that 46 per cent of leasehold house owners were unaware of the escalating ground rent when they purchased their property.

Earlier this week, in the Queen’s Speech there was welcome confirmation of leasehold reform, which will see ground rent charges banned following on from announcement from the Housing Secretary, Robert Jenrick, earlier in the year.

However, it will only apply to new buyers of new-builds in England and Wales – meaning 4.5million leaseholders in England and Wales will still be liable for the costs.

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So it seems that Carole will be forced to start paying the excessive ground rent charges.

She is hoping to be able to pay for the pricey lease changes by suing the law firm that dealt with her conveyancing, FBC Manby Bowdler, for negligence after she claims it failed to alert her to the “ridiculous” clause.

“I was shocked by the letter about the charges as I knew nothing about this when I bought the flat,” Carole told i.

“There is no guarantee that the proposed reforms will definitely go ahead at the moment and that they will help my case. I fear that my home is worthless. It’s causing me a lot of stress.”

Shilpa Mathuradas, head of litigation at Osbornes Law, who is representing Carole in the negligence case, said: “Our client has been left in a horrendous position. We argue that this doubling of the ground rent clause was left in as a direct result of negligence on the part of the acting solicitors for failing to provide a service to a reasonable standard.”

A spokesperson for FBC Manby Bowdler said he could not comment on a specific case, but added that award-winning law firm always strives to offer a first-class service to all its clients and adheres to the Solicitors’ Professional Code of Conduct.

i could not reach the freeholder MEA Real Estate Ltd for comment.

What are the proposed law changes?

Under new proposals not included in the Queens speech, millions of leaseholders could be given the right to extend their lease by up to 990 years at zero ground rent.

Currently, leaseholders of houses can only extend their lease for only 50 years once and pay a ground rent. Flat owners can do so multiple times usually with a peppercorn rent for just 90 years.

Under the reforms, which were recommended by the Law Commission and impact properties in England and Wales, both house and flat owners would be able to extend to up to 990 years with a ground rent at zero, and all new retirement properties will be sold without a ground rent. As well as it being easier and cheaper for homeowners to buy the freehold or extend their lease, the new measures would allow leaseholders to take control of the management of their block of flats or an estate.

Extending a lease comes at a cost, but the government said it would change the way these are calculated, including ditching costs such as the so-called ‘marriage value’, which forces the leaseholder to share a potential profit from the extension with the freeholder. This will make charges more transparent.

‘Mortgage prisoners’ of the cladding crisis

Dympna Pettit has bought property that has doubling ground rents
Caption: Dympna Pettit has bought property that has doubling ground rents

Dympna Pettit and her husband bought four flats they hoped would provide for their retirement, but soaring ground rents and service charges along with cladding issues are threatening the value of their investments.

One of their apartments is costing £275 a year in ground rent which is doubling every 10 years with no cap. For two of their flats they are currently billed for £250 per annum, which will double every eight years, capped at 24 years.

“When you have a number of properties it is going to really add up,” she told i. “I’ve been told I can switch to a Retail Prices Index (RPI) linked rent review for around £20,000 for one flat which is extortionate.

“I’ve just had a letter to say for one flat due to repairs the management firm is adding £617 on to the service charge that we pay £1,000 a year on.

“And we’ll be looking into extending the leases which costs thousands.”

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In this case, the couple, from Pembrokeshire, Wales, knew about the ground rents when they bought the properties. But they didn’t foresee potential costs of replacing cladding on two flats they are awaiting survey results for. “You hear awful stories of people having to pay many tens of thousands per flat to have it taken off and replaced,” said Dympna.

There are an estimated 2m ‘mortgage prisoners’ because of the cladding crisis, which was thrust into the limelight following the horrific fire at Grenfell Tower in 2017 that killed 72 people. Dympna tried to release some equity from a flat with cladding but was refused.

MPs have calculated that the total bill to remove dangerous cladding from buildings could reach £15bn, but so far the government has pledged only £5bn to fund remedial repairs on buildings over 18 metres tall. It has offered loans on repairs on shorter properties..

A push to include better financial protections for thousands of leaseholders from crippling fire safety bills of up to £100,000 each was defeated in a Parliamentary vote last month, despite a large rebellion by Tory MPS.

Dympna said: “My husband was self employed with no pension, so we’re now relying on the income from these properties to live on. Each month there is an unexpected cost. We certainly hadn’t anticipated costs going up as much as they are.”

Do you have a real life story? Email claudia.tanner@inews.co.uk.

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