It is becoming increasingly common to see leasehold properties with high annual ground rent or escalating ground rent. However, an unintended consequence of this is that if the ground rent is over £250 (or £1,000 for London), then the lease will fall within the definition of a tenancy under the Housing Act 1988.
Unforeseen Consequences – Terminating the Lease
The main impact of this would be in the termination of the lease. In most leases, there is a provision for the Landlord to forfeit the lease and take back the property if the rent is unpaid for 21 days. In practice, the Courts will often grant relief from forfeiture so that this right cannot be exercised so long as the rent arrears are paid off.
This discretion does not apply to possession proceedings under the Housing Act. If three months of rent is more than three months overdue, and a valid notice has been served, the Court must grant an order for possession. This would effectively terminate the lease and give the property to the Landlord.
The above is subject to safeguards, three months’ rent must have been outstanding at the date of the notice and at the date of the Court hearing. A sensible Leaseholder would therefore pay ground rent promptly, however, this could be used as a tactic by Landlords to pressure Leaseholders into payment.
Unforeseen Consequences – Enfranchisement, RTM, & Right of First Refusal
Another impact could be on the status of the Leaseholder. Certain areas of law are affected by the number of qualifying tenants in a block of flats. These include: where a Landlord wants to sell the block to a third party, where Leaseholders want to take over management rights of the block, or where the Leaseholders want to force the sale of the block to them.
The holder of an AST is not a qualifying tenant for the above purposes. This could affect the calculation for the number of qualifying tenants in a block and whether the above processes are triggered.
Exceptions to the Rule
A lease is not an AST if the Leaseholder does not occupy the property as their principal home. So where a Leaseholder rents of their property to a subtenant it confirms that the Leaseholder holds a lease. In addition, leases granted to companies can never be an AST.
What can you do?
Depending on your circumstances Attwells Solicitors can provide you with a leasehold advisory service. Our team of litigators can offer you a Law Case Assessment and Letter of Advice for £350.00 plus VAT, alternatively Attwells can draft a leasehold deed of variation agreement.