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Pier Management lease extensions and deeds of variations to change ground rent

If your freeholder uses Pier Management to manage your flat’s ground rent account and your ground rent doubles then you may have received a letter from Pier Management offering a deed of variation to replace the doubling ground rent with one which has review clauses to increase the ground rent in line with the increase in the Retail Price Index (RPI).

The reason you have received this is because there has been considerable focus on onerous ground rents due to problems on resale or remortgage. Generally, ground rents more than £250 per annum outside of London or £1,000 per annum inside of London which increase significantly on review such as doubling on a frequency of less than every 25 years are considered onerous and prevent a sale proceeding or a mortgage being obtained. Due to government pressure, a number of the larger new build developers such as Taylor Wimpey are removing such ground rents at their own cost. There is no legal requirement for this generally, but a number of freeholders and/or managing agents have been offering various options to leaseholders to change potentially onerous ground rents.

The offer from Pier Management may, on the face of it, seem attractive as a current doubling ground rent will be removed at little cost but the replacement ground rent may not actually be beneficial.

Typically, the offer is to replace any ground rent with one reviewed in line with the RPI every 10 years.  Therefore, the period between reviews may become shorter if, for instance, you currently have a lease with reviews every 20 years. Also, Pier Management’s offer allows for an initial ground rent which has already been reviewed to be increased inline with the RPI up to the first review and then to use this recalculated ground rent as the initial new ground rent within your amended lease. Furthermore, and importantly, inflation is currently very high and the RPI is correspondingly increasing at a high rate.  This could potentially lead to a significant change in your ground rent – increasing by the change in RPI could lead to much larger overall ground rent payments.

If you have been the registered owner of your flat for more than 2 years, you will have a legal right to a Statutory Lease Extension under the terms of the 1993 Leasehold Reform Housing and Urban Development Act. A statutory lease extension as well as extending the term of your lease by an additional 90 years also resets the ground rent to a peppercorn (zero) for the duration of the lease. Although there is a greater cost to you of obtaining a statutory lease extension, this does completely remove the ground rent from your lease and is often a better option than a voluntary change to a ground rent increasing by the RPI.

We specialise in advising and assisting leaseholders with both onerous ground rent problems and/or requiring lease extensions. We can look at the details of any voluntary offer by your freeholder and/or managing agent, your existing lease and calculate costs for either a deed of variation or a statutory lease extension and undertake negotiations with your freeholder to agree appropriate terms. We can as part of this process explain what any voluntary offer to change a ground rent actually means and whether you should consider this option.

If you are concerned at all about the ground rent provisions in your lease or a voluntary offer you may have received from Pier Management, then please call or email us for an initial no obligation discussion regarding your situation and the options open to you.

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