Simarc Property Management Limited (SPM) founded in 1983 specialises in the management of ground rent portfolios.
Apart from ground rent collection SPM deals with all day to day management issues such as Notices, Consents, Sub- Lettings and Rent Information etc on behalf of freeholders as well as negotiating individual freehold sales and lease extensions with leaseholders.
A lease is a special type of property contract that sets out in writing the relationship between the building owner and the flat owner. It is an extremely important document. Understanding the rights and obligations it sets out on the respective parties is critical to understanding the complex way residential leasehold property operates.
Persons residing in a leasehold property (lessees) are liable under the terms of their lease to pay an annual ground rent to the freeholder for the term of the lease. The freeholder effectively owns the land and any property built on their land, whilst the leaseholder has the right to live at the property, subject to the payment of the ground rent and the other terms and conditions set out in their lease. Leases are typically for between 99 and 999 years duration at their inception. On expiry of residential leases the tenancy reverts to an assured tenancy at an open market rent.
Ground rent is a small annual rent payment made by a leaseholder to their landlord under the terms of their lease. Typically, it can be around £50 -£100 per year.
A formal notice of ground rent must be served upon the leaseholder before they can be compelled to pay it. The notice must give a date for payment no earlier than 30 days and no later than 60 days after the notice has been given. In any case the date for payment stated in the notice cannot be before the due stated in the lease. Although ground rents are typically fairly small the value attributed to the freehold interest subject to the lease tends to be a multiple of the value of the annual rental payable.
A lease is a depreciating asset. Although a flat owner may have spent hundreds of thousands of pounds acquiring their lease, in fact it becomes less valuable each year. This is because the term of the lease expires by one year annually. To remedy this underlying unfairness, individual flat owners have the right to ask the building owner to extend their lease. In addition, a group of flat owners acting together can collectively ask to purchase the freehold from the building owner. This process is called enfranchisement. After enfranchising, each participating flat owner owns a share in the freehold and will usually receive a lease extension at no extra cost. Purchasing the freehold or extending a lease will come at a cost, but also serves to protect the value of the property.
A qualifying leaseholder of a house (having owned a property for 2 years) has the right to enfranchise under the Leasehold Reform Act 1967 (as amended), enabling them to purchase the freehold of their house. Although the procedure is fairly straightforward the leaseholder is required to pay the cost of a formal valuation together with the freeholder’s legal and professional fees as well as their own legal costs. On a comparatively low priced freehold the costs can therefore be more than the cost of the freehold itself and the freehold is typically priced at a level in excess of that which would be awarded by a Leasehold Valuation Tribunal, but at a lesser sum than that which would be arrived at from adding the enfranchisement costs. Accordingly, only a minimal number of leaseholders (none with 999 year leases) actually decide to purchase under the Act.
A qualifying leaseholder of a flat has the right to a statutory 90 year lease extension under the Leasehold Reform, Housing and Urban Development Act 1993 (as amended), whereby a capital sum will be paid to the freeholder and no further ground rent will be payable. Under the Act the leaseholder has no other option than to pay a capital sum, often in excess of £10,000 (which is then available for reinvestment). Mortgage companies will not lend on leases with less than 60 years to run, so the majority of lease extensions tend to take place where the lease has between 60 and 85 years left to expiry. As an alternative to the statutory process, the leaseholder can instead be offered a new 100 year lease, but instead of paying a premium the leaseholder can increase the amount of ground rent they pay (typically by £300 per annum) which will also be linked to RPI with 10 year reviews. This arrangement is not only favoured by the leaseholder, as they avoid a large capital outlay, but is also favoured by the freeholder since by granting a new 100 year lease the property becomes reversionary again in 20 years. However in both cases the lease remains within the portfolio and will eventually require a further extension.