Owners of buy to let properties across the UK could be entitled to compensation due to onerous ground rent charges according to a legal firm.

As has been well documented in the past year, in the past developers started selling homes on a leasehold rather than freehold basis – often without the buyer fully understanding the contracts they were entering into. 

In some cases, the freeholds were then sold to offshore investors, who have since demanded large sums from homeowners to buy out these contracts; amongst the victims are thousands of buy to let owners.

Now the East Midlands-based law firm Nelsons is saying that landlords caught in ‘the ground rent trap’ could be due compensation.

Daniel Brumpton, partner and head of Nelsons’ professional negligence team, says: “There are currently four million leasehold properties in the UK, with around 100,000 of these being affected by onerous ground rents.

“We’re ready to help landlords who have found themselves unwillingly involved in the leasehold mis-selling scandal to bring a professional negligence claim against the conveyancing solicitor they instructed to help with the purchase of the property.

“If the solicitor failed to give you advice about the existence and implications of the onerous ground rent clause, we can assist you in suing for damages.”

He continues: “Other payments provided for in long leases can include fees charged by the freeholder to the property, such as building an extension or for agreeing to a re-mortgage of the property. Ownership returns to the freeholder when the lease comes to an end.”

Brumpton says that historically, ground rents have been low – no more than around £50 per year – but house builders have recently started to increase ground rents to an initial charge of between £250 to £500 a year.

“They have also added clauses in the lease that allow them to review the ground rent periodically, for example, every five, 10 or 25 years. Typically, the review clause allows the freeholder to increase the ground rent at each review.

“In theory, a ground rent that doubles every 10 years doesn’t sound too bad. However, most leases are set for a long term such as 999 years. If a ground rent of £250 per year doubles every 10 years, you can expect to pay £16,000 per year after 60 years. For many people, that’s simply unmanageable. This is also not something a landlord of a buy to let property could expect to pass on to tenants either.

“If you are a leasehold owner who purchased a new build property in the last 10 years, you should check your lease to see what it says about ground rent and what you can expect to pay.”

The government announced that all newly built houses will now be sold on a freehold rather than leasehold basis, with ground rents on new leases being reduced to zero. 

And the Competition and Markets Authority watchdog has launched an investigation into the housing market over the mis-selling of leasehold properties, which will investigate permission fees, ground rents and other terms associated with leasehold properties.

“The competition watchdog will be consulting with developers, lenders and freeholders requesting information in relation to how leasehold agreements are drawn up, agree and subsequently maintained by the parties. The report will also consider the effects that ‘unfair’ terms have on leaseholders and have asked for people to share how they have affected their lives. Developers and freeholders could face legal action if the watchdog finds evidence of leasehold mis-selling” says Brumpton.