Following the outcome of the Government investigation into the “the Ground Rent Scandal” Aviva have now agreed to make changes to long-term residential leases where Aviva is the landlord and where the terms of their lease cause their ground rent payment to double more frequently than every 20 years.

Previously Aviva Investors had offered leaseholders with a doubling term (i.e. rent doubling every 10 or 15 years) the opportunity to replace it with a Retail Price Index linked ground rent (a ‘RPI replacement term’).

However following pressure from the Government Aviva have improved the offer to leaseholders and now all long-term residential leases where Aviva is the landlord (and which still have or did have a doubling term) will be varied so that they no longer contain that doubling term or the RPI replacement term.

If the ground rent has already increased the ground rent will be reset to the amount it was when the lease was first granted (the amount recorded in the lease) and this will never increase.

What do I need to do to make this amendment?

If you have a qualifying lease you do not need to do anything as Aviva’s asset manager, Mainstay Residential Limited, will contact you by no later than 21 September 2021.

If you have not been contacted by 21 September 2021 and believe you have a qualifying lease then after that date you can email rentdeed@mainstaygroup.co.uk.

How can we help?

We offer a “free” legal service to fix your lease if you are affected.

What is the problem with doubling reviews?

Clearly it does not take a mathematician to work out the effect of a ground rent that doubles every 10 years.

Within 50 years a ground rent of £250 per annum (or year) becomes £8,000 per annum {£500 (1st review) £1000 (2nd review) £2000 (3rd review) £4000 (4th review) £8000 (5th review)}.

In comparison historically ground rents were often small sums increasing, if at all, every 25 or 33 years, for example £75 for the first 33 years and £150 for the next 33 years and £300 for the next 33 years.

These Taylor Wimpey leases also tended to back dated the start dates of the term to before the date of the lease so that the reviews started at year 8 for example.

This created a very nice income to be bundled up and sold on to ground rent investors.

However the second compounding issue was that the developer did not take into account the value of the property being sold, so these same rent figures (e.g. £250 per annum) applied to lower value housing outside London and the South East (where a ground rent is a much higher proportion when compared to the value/sale price) .

Therefore the saleability or mortgageability of your property may be affected to different degrees dependent upon the value of your property.

A flat worth £600,000 in London will be less affected than the £120,000 house in Liverpool but both would probably benefit from the change being offered to the lease.

Lenders have also changed their criteria for lending on such leases now and generally any newbuild flat should not have a ground rent which is more than 1% of the value of the house or flat and there should not be a 10 year doubling rent. RPI is seen as an acceptable alternative. Ground rent doubling over longer periods, say every 25 years are also seen as acceptable at present.

As a result many buyers are refusing to buy such leases and this is part fuelled by recent advice from solicitors and valuers.

Mortgage Lenders Toughen their position

The Nationwide Building Society and many other lenders updated their mortgage instructions in mid 2019 to deal specifically with ground rent reviews on “second hand” properties. They advised that where ground rent doubles more than every 20 years (e.g. doubles every 5, 10 or 15 years) solicitors are to advise the Issuing Office for the mortgage offer and the Offer in their words “will be declined”.

Clearly the change to a lease with no rent reviews will make it more acceptable to the lender.

What are the details and limitations of the scheme?

You need to be a tenant of Aviva. Beyond that there does not appear to be any limitation.

As there is no increases on the ground rent then the position is much better that a doubling ground rent or an RPI ground rent (which can roughly work out to be a doubling ground rent every 25 years or so).

If the rent is fixed and does not increase throughout the term of the lease then this is a very good deal for you.

You can even apply for the scheme even if you had previously obtained the RPI rent review variation.

Have you any experience in dealing with these matters?

We have already successfully helped a great number of leasehold owners on similar schemes

As solicitors what do you do?

We provide a the legal service required to vary the lease. We only act for you (and your mortgage lender). We will do this effectively for free within the fee scale offered by Aviva to cover all legal costs and disbursements.

As Aviva only make a “fixed payment” towards your legal costs many non-specialist solicitors will charge you over and above this fee. We will not charge additional costs on top.

Obviously we need to make sure that the details of the variation are correct and there are no other provisions which would adversely affect your lease.

If you require further information call Mark Sadler on 01708 757575 or email mbs@ker.co.uk

Sounds great, can I instruct you?

Yes. Please email us for further details. We will email you a form to complete and return to us.

What happens next?

As soon as we receive your form it is always good to get the consent of your mortgage lender as this can slow the process if left to the end.

We will then receive an undertaking from Aviva’s lawyers to cover the costs (this can take a few weeks) and usually a week or more later we are contacted by the  their solicitors with the draft documents. This contains copies of the title and the deed of variation. We can then approve the documents and arrange for you to sign in readiness for completion. Completion will only occur if all the documents are back signed by all parties (you and the freeholder and any management company who is a party to the lease).

Please note this process can take several months to complete (from experience).

How can I be sure if it affects me?

If you have a copy of your lease you can either email Mark (mbs@ker.co.uk) with a copy or look at the first clause under the ‘Rent review’ heading. This will indicate the type of rent review you have. If you don’t have a copy of your lease you can call the solicitor who acted for you in the purchase and ask for a copy.

What if I am selling?

It is crucial that you sort out this issue for a sale as your current rent review provisions may not be acceptable to a buyer or their lender. As the process can take several months we recommend you start as soon as possible. We can of course also deal with the sale for you at the same time.

Where can we help?

If you decide to progress with the scheme we can help you on the legal side.  We can assist you with these matters whether you have a single flat or 20 flats. Please contact Mark Sadler, Director on 01708 757575 or email mbs@ker.co.uk for further information or to instruct us.