Ground rent deals
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This is because: This inevitably creates scarcity in the market. It will be a number of years until the more modern plus year leases tick down to become reversionary. With any house price growth, this effect is amplified.
Within a low return environment, the price point for reversionary ground rents is relatively small compared to other forms of property investment. The sophistication in pricing we have witnessed in non-reversionary ground rents has begun to filter in to the reversionary market as traditional ground rent buyers have been priced out of non-reversionary assets by large scale purchasers with very different pricing models.
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Reversionary ground rents have been perceived to offer better value for money to smaller investors. The underlying pressure on lessees needing lease extensions at higher unexpired terms is apparent. With increasingly tightened mortgage lending rules and many borrowers taking on longer term loans, the marketability of shorter leases in the housing market has been diminished, particularly since the late noughties recession.
This is unlikely to relax any time soon. Notes to editor Richard joined Allsop in as a Graduate Surveyor rotating between its Valuation, Investment and Auction departments. Latest Posts View the latest posts from the Allsop Media archive.
What you might have missed View the latest posts from the Allsop Media archive. This is one area where one size will not fit all and the parties need to take time to understand the operational business and what is truly needed against what is merely desirable. Where the modern product has particularly improved, as compared to previous iterations, is over the freedoms granted to vary the portfolio following completion. It would be a rare business that does not need to vary its asset base to meet the changing demands of the market or its customer base.
It is therefore not uncommon for the parties to agree that properties may be substituted within the portfolio based on pre-agreed metrics to ensure a like for like exchange, and it is flexibilities such as these which are key to both a successful relationship between investor and operator and also to the continuance and growth of the investment vehicle itself. It would seem that, for now, ground rent transactions are here to stay.
If portfolios are of the right scale, they can provide an attractive investment option for long term institutional investors looking for long dated investments, while allowing owners to unlock value. How robust the market will remain will depend upon transactions avoiding the temptation to over leverage and also on the macro-economic situation and how attractive real estate, as a long-term investment, remains compared to other asset classes.
Reversionary ground rents in - an oldie but a goodie - Allsop
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Back Forward. The value of ground rents is affected by the rent review pattern on future income increases, the value of the underlying property, the unexpired lease length and whether marriage value is applicable. Prior to selling ground rents there is a statutory obligation incumbent on both parties that Section V notices are served on the long leaseholders. This gives them a two-month period within which to respond. Upon expiry of the notice, a transaction can proceed at the price stated on the notice or higher but not lower for up to 12 months subsequently. This then allows completion upon sale of the last flats without the need for Section V notices.
Before the Land Registry recorded the ground rent, and the rent is evident from the entry that can be requested from the website. From 13 October the Land Registry changed its procedures, and there is no longer any provision for entering the rent on the register. This can result in subsequent mortgage refusals, and make the property unsellable. Leaseholders have a right after 2 years to extend the lease and reduce ground rent to "peppercorn" or zero, but developers have responded with year leases that make the valuation - based on the ground rent and term - beyond the reach of leaseholders, and sell the freehold - often before the development is finished - to exploitative offshore companies.
The English "ground rent scandal" has been widely reported in the press. In MP Peter Bottomley described the scandal of ground rents as "legalised extortion". In response to questions raised by the MP communities secretary Sajid Javid said: We do work with a number of stakeholders and we can certainly see how we can do more.
What are leasehold houses?
In June the UK government announced that leasehold tenure would be reformed, with new long leases having zero ground rent. In Scots law , the term ground rent is not employed, but its place is taken, for practical purposes, by the ground annual , which bears a double meaning:. Feu duty in Scotland was ended by the Abolition of Feudal Tenure etc. Scotland Act In the Republic of Ireland ground rents have been a feature of urban life. The term ground rent is applied in many U. The State of Maryland maintains provisions for ground rents, primarily in the Baltimore area. In , an emergency bill was presented by Democratic Maryland Governor Martin O'Malley to completely ban new ground rents [22] and prevent ground owners from seizing houses from delinquent homeowners.
New ground rent leases can no longer be created after January 22, [27] , and ground rent owners must register their leases with the State Department of Assessments in order to collect rents or file a lien for unpaid rents [28] although failure to register no longer risks extinguishment of the property right.
Ground Rent Deals are Once Again in Fashion
Ground rents in the Commonwealth of Pennsylvania are considered real estate and, in cases of intestacy , go to the heirs. They are rent services and not rent charges, [ clarification needed ] the statute Quia Emptores never having been in force in Pennsylvania, and are subject to all the incidents of such rents.
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The grantee of a ground rent may mortgage , sell, or otherwise dispose of the grant as he pleases, and while the rent is paid the land cannot be sold or the value of the improvements lost. The owner of land can occupy it, or can improve it and sell the improvements such as structures , while retaining title to the land, and charge the buyer ground rent.
A ground rent being a freehold estate , created by deed , and perpetual in duration, no presumption that it had been released could, at common law , arise from lapse of time. However, by statute Act of 27 April , s. Ground rents were formerly irredeemable after a certain time, but the creation of irredeemable ground rents is now forbidden Pennsylvania Act 7 Assembly, 22 April The obligor is the party obliged to pay, and the obligee the party entitled to receive, the ground rent.
The amount of a ground rent may be changed by either party once every five years, but, unless the parties agree otherwise, the amount of such a change may be no greater than the percentage change in the Consumer Price Index or other standard prescribed by statute during the previous three years.