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Freehold Ground Rents

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Having attended my first property auction today, purely as an observer, I was wondering why do people buy Freehold ground rents?

What's the deal with buying them? How do they work? Do people expect to make a very good return over a long period?

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What happens when the lease runs out?

There are various rules, but in general:

- The leaseholder is entitled to an extension of the lease

- Leaseholder and freehold landholder agree a price

- If no price can be agreed, it goes to arbitration who set a price

- If the leaseholder elects not to extend the lease, freehold landholder gets the building

- The earlier a lease extension is arranged, the cheaper it will be per year

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What happens when the lease runs out?

If the lease iis not renewed, you own the entire property.

There are quite complicated rules about how the leaseholder can 'buy' the freehold from the freeholder, and so control the ground rent. As a result of this, the lease is usual renewed several years before it expires.

Essentially it is possible to think of most ground rents as perpetual cashflows. Some of them can be index linked. And because if they cease being paid, the whole property is forfeited, they are almost entirely risk free.

Index linked risk free perpetual cashflow are value assets for things like family trusts.

Owning a ground rent can also give rights to quite substantial ancilliary income associated with the property management contract.

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There are businesses out there that invest in Freeholds of buildings. As the freeholder you collect funds from the leaseholders, in return you arrange building insurance, repairs, maintenance etc.

The apparent lack of demand, may indicate this business is not very profitable.

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There are businesses out there that invest in Freeholds of buildings. As the freeholder you collect funds from the leaseholders, in return you arrange building insurance, repairs, maintenance etc.

The apparent lack of demand, may indicate this business is not very profitable.

just because it is for sale doesn't necessarily mean it isn't a profitable investment.

like anything else it just depends on the terms and circumstances.

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just because it is for sale doesn't necessarily mean it isn't a profitable investment.

like anything else it just depends on the terms and circumstances.

developers have resorted to selling these as they need the cash and have been easier to get rid of than property. However, the biggest buyers (brandeaux fund, Tchenguiz bros via Erinacious) have severe funding problems and cannot purchase like they were, so classic case of increaseing supply and decreasing demand.

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My sh!tty little house has an annual ground rent of £7.50 I have to pay to some company in Wales. Although THEY say I have the right to collect some such pathetic sum from my neighbours. Not sure how it all works legally, but can you imagine knocking on the immediate neighbours doors asking for a fiver each year ?

I'm sure that would be worth the agro for the next 12 months :ph34r:

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My sh!tty little house has an annual ground rent of £7.50 I have to pay to some company in Wales. Although THEY say I have the right to collect some such pathetic sum from my neighbours. Not sure how it all works legally, but can you imagine knocking on the immediate neighbours doors asking for a fiver each year ?

I'm sure that would be worth the agro for the next 12 months :ph34r:

YOu can reclaim the properties and land they sit on if they don't pay. It is enforcement of this that makes ground rents virtually risk free (of course, enforcement is not easy in many cases)

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YOu can reclaim the properties and land they sit on if they don't pay. It is enforcement of this that makes ground rents virtually risk free (of course, enforcement is not easy in many cases)

Actually enforcement is very very easy.

Surprisingly so.

The company I know of that enforced, was amazed at how easy it was, when a little old lady refused to pay, and kept refusing, despite everyone (judge, lawyers, advisers, family) telling her to pay, the judge simply ruled that she should be evicted and the the property in its entirety released to the freeholder. End of.

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My sh!tty little house has an annual ground rent of £7.50 I have to pay to some company in Wales. Although THEY say I have the right to collect some such pathetic sum from my neighbours. Not sure how it all works legally, but can you imagine knocking on the immediate neighbours doors asking for a fiver each year ?

I'm sure that would be worth the agro for the next 12 months :ph34r:

The same company probably leases the whole of Wales for £7.50!! I've been seeing some flats recently that have ground rent and service charges of £4000!! a year, mind you they do pay your water rates and leccy bills. :huh:

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Judging on the invoices I used to receive for my tiny London flat, the co. that bought that freehold did it so that they could charge us all a 15% management fee for every tiny piece of maintenance that may or may not have needed doing. A light bulb in the hall here, external redecoration there. It all added up to about £6k in the eight years I owned it. Which is why you're far better off with freehold if you can afford it.

Smith

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