WHY EXPERT EVIDENCE IS VITAL IN GROUND RENT REVIEWS

Understanding statistics is a much undervalued skill today, writes Kevin Atkins.  This was brought home to me recently when I read a positive comment saying that 80% of ground rent reviews were agreed between the relevant parties – the implication being that there wasn’t a problem because the vast majority of such cases were settled without the need for further arbitration.

But 80% of cases agreed means that one in five are not, and that is a significant enough proportion not to be ignored.

Ground rent is an annual payment made by a leaseholder to a freeholder for the right to occupy the land their property is built on; it differs from an occupational lease in that the occupier owns the building, and the payment is only for the land it stands on.  Such agreements were more common in the 1970s and 1980s than they are today, but there are still plenty of such agreements in place.

Almost every such ground lease will contain a clause allowing for periodic ground rent reviews, typically at intervals of five, ten or 15 years.  And it is here that one in five cases ends in disagreement.

When this happens, the case is typically referred to a third party Arbitrator or Independent Expert, either through RICS or through agreement between landlord and tenant.  The appointed adjudicator will consider the evidence and valuation reasons and issue a determination which is binding on both parties.

The problem is that such evidence is sometimes quite scarce, with transactions typically not in the public domain; the granular details of transactions are sometimes withheld.  Given the difficulty in obtaining evidence and the complexity of understanding lease terms which were often granted over 50 years ago, it can be difficult for an occupier to negotiate a reduction.

This is where expert independent advice comes in, with knowledge of the market and understanding of the lease terms which underpin the valuation of the site.  An experienced surveyor will have an in-depth knowledge of the market and will be able to come up with evidence which is relevant to the particular site in question, and delve into the original lease terms to find further reasons to moderate any increase.

I recently acted as an expert witness in a ground rent review for a site measuring just under an acre.  By putting forward well-researched evidence, I was able to persuade the adjudicator that the new ground rent being demanded was excessive, shaving around 40% from the landlord’s proposal - saving the occupier literally hundreds of thousands over the five year rent review period.  This set a precedent for other reviews and resulted in negotiated settlements elsewhere.

When it comes to ground rent reviews, credible expert advice is vital.  Seeking such professional advice is almost always a good investment.