An Auction Purchase Where the Seller Tried to Insert a Ground Rent
Kingston Road, Raynes Park SW20. A new 125-year lease was being granted on completion — carrying a ground rent that the law has not permitted since June 2022.
At a glance
- Service
- Auction purchase of a leasehold flat
- Location
- Kingston Road, Raynes Park, London Borough of Merton, SW20
- Property
- First-floor Victorian conversion flat
- Tenure
- A new 125-year lease granted on completion
- Issue
- The seller’s draft lease reserved a ground rent, which a lease of this kind may not do
- Outcome
- Ground rent removed and reduced to nil before completion. Purchase funded from cash, with a bridge-to-let facility arranged afterwards through the lender’s own solicitors
What the draft lease contained
Our client bought a first-floor Victorian conversion flat on Kingston Road at auction. The sale was structured so that a new 125-year lease would be granted on completion rather than an existing lease being assigned. That is common enough and usually welcome — a buyer takes a fresh, long lease instead of inheriting a short one. It also means somebody has drafted a new lease, and somebody has to read it.
The seller’s draft included a ground rent.
The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022. Since that date, a long residential lease of a single dwelling granted for a premium — a regulated lease, in the language of the Act — may reserve no more than a peppercorn. The rule attaches to the grant of the lease and does not depend on what the parties are willing to agree between themselves.
A rent reserved in breach of it is not payable, and the consequences fall on the landlord rather than the leaseholder. Rent wrongly collected must be repaid with interest, and enforcement sits with local weights and measures authorities, who can impose a penalty of between £500 and £30,000 per lease.
Why it appeared is a separate question and not one we needed to answer. The most likely explanation is the least interesting: a precedent lease drafted before the change, reused without anyone rereading it. That is how most defective leases come into existence.
Why a small rent is not a small problem
It is tempting to treat a modest ground rent as a nuisance rather than a defect. It is not, for three reasons.
It affects mortgageability. Lenders scrutinise ground rent provisions closely, and a rent that should not be there at all invites exactly the sort of enquiry that delays an offer or loses one.
It is capitalised. Any future premium — to extend the lease, to buy the freehold — takes account of the rent stream. A rent the buyer should never have been paying becomes a figure they later have to pay to remove.
And it lands on the wrong person. Once the lease is granted and registered, the problem belongs to the buyer, who has to raise it, argue it and probably pay to fix it. Before completion it costs a paragraph of correspondence.
The rent was removed and reduced to nil before completion, and our client took the lease he should have been offered in the first place.
The practical point. If you are being granted a new lease — at auction, on a sale, or as part of an extension — read the rent provisions before you sign. The rule is several years old and old precedents are still in circulation.
Auction does not mean take it or leave it
There is a widespread assumption that auction terms are immovable, and for the contract itself that is largely true. But where a new lease is being granted, its form is usually in the legal pack, and the time to query it is before the hammer falls, when the seller still wants your bid.
That is the practical argument for having the pack read before you bid rather than afterwards — not only to identify what is wrong, but to have leverage while it still exists.
On funding, the client completed using cash reserves and arranged a bridge-to-let facility afterwards, handled by the lender’s own appointed solicitors. We acted for the buyer on the purchase; we do not act for lenders on purchase mortgages, and where one is involved we say so at the outset and arrange the introduction.
When this applies to you
Check the rent before you sign, not after
Any new long residential lease granted for a premium since 30 June 2022 should reserve nothing more than a peppercorn. If yours reserves a rent, it is not enforceable, and the landlord — not you — carries the consequence.
It is far easier to deal with at draft stage than after registration, which is the whole argument for having the lease read properly before completion.
Common questions
Can a new residential lease still have a ground rent?
Not where it is a long lease of a single dwelling granted for a premium on or after 30 June 2022. Under the Leasehold Reform (Ground Rent) Act 2022 such a lease may reserve no more than a peppercorn, meaning nothing is actually payable. The Act is not retrospective, so leases granted before that date are unaffected.
What if I have already completed on a lease with a ground rent that should not be there?
The rent is not payable, anything already collected must be repaid with interest, and the landlord faces a penalty of between £500 and £30,000 enforced by trading standards. All of which is more disruptive than removing a clause from a draft.
Can lease terms be negotiated on an auction purchase?
The contract terms generally cannot. But where a new lease is to be granted, its form usually sits in the legal pack and can be raised with the seller before the auction. Once the hammer has fallen there is far less room to move.
Do you act for my lender as well?
Not on purchase mortgages. Where lending is involved we say so at the outset and refer to a consultant solicitor who can act for both, or work alongside the lender’s own appointed solicitors, as happened here.
Client names are not used in our case studies. Properties are identified by road, block and postcode only. Every matter turns on its own facts, and outcomes described here are not a prediction of what will happen in yours.