Most residential long leases will generally reserve a "ground rent” to be paid by the tenant in addition to any service charges in respect of the landlord’s costs.
Historically ground rents were very low or nominal rents for the land on which the building sits and had no bearing on the value of the land.
However, some landlords now look to include a more substantial ground rent and one that increases significantly over the term of the lease.
As Nicola Muir explains in her article for the Estates Gazette, the long lease could, because of the level of the ground rent, be or through increases become an assured tenancy, notwithstanding the duration of its term and the payment of a premium on its grant.
If the ground rent is over £1,000 per annum in London or over £250 elsewhere at any time then an Assured tenancy will be created.
This potentially has some serious consequences, both for landlords and tenants. Landlords will need to be aware of the correct procedures where tenants are in arrears or in breach of the lease, including serving valid notices seeking possession under the Housing Act 1988 reciting the relevant grounds for possession.
Tenants need to be aware that Ground 8 in schedule 2 to the Housing Act 1988 is a mandatory ground where if made out the Court must make a possession order. Contrast this with forfeiture proceedings where the Court has a wide discretion to grant relief from forfeiture.
The wide discretion under section 146 of the Law of Property Act 1925 allows the court to ensure that the tenant retains the valuable asset, whereas Ground 8 could result in the tenant losing that valuable asset.
Accordingly, if a long lessee lives in his or her flat and is obliged to pay rent at a rate higher than these figures, he or she will inadvertently become an assured tenant. But there are a number of problems which flow from this.