Information for leaseholders

We believe that Best-in-Class management is fundamental to the well-being of our leaseholders, service providers and other visitors to our properties. Successful and sustainable management should also support the long-term returns to our investors, as well as have a positive impact on local communities. We all have a role to play in the promotion of a good health and safety culture, using our collective knowledge and experience to promote continuous improvement in the management of our built environment.

There are different types of ground rent reviews. Below we have summarised how you may identify the type of review by examining the language in the lease.

Index-linked rent review

Based on the example lease wording below the initial ground rent payable is £100.00 per year from 1st January 2010 and is reviewed every ten years of the lease according to the Retail Prices Index (RPI).

To calculate the ground rent payable per year from 1st January 2020 we take the initial ground rent and multiply it by the change in the relevant RPI figures between 2010 and 2020.

The relevant increase in the RPI is 34.35% (based on the percentage increase between the RPI figure of 216.6 (November 2009*) and the RPI figure of 291.0 (November 2019*).

£100.00 x 34.35% = £134.35. This provides for a reviewed ground rent payable of £135.00 per year for the next ten years from 1st January 2020 once rounded up to the nearest five pounds (see example lease wording below).

Example lease wording:

"Base Index Figure": the last published Index figure immediately prior to the Commencement date

"Commencement Date": 1st January 2010

"Index": the "All Items" Retail Prices Index published by the Office for National Statistics or its replacement or substituted index

"Rent": £100.00 (one hundred pounds) per annum subject to review in accordance with clause 1

“Review Date”: each successive period of ten years from the Commencement Date

"Term”: 125 (one hundred and twenty five) years from the Commencement Date

Clause 1

On each Review Date the Rent shall be reviewed by multiplying it by the Index figure last published immediately before each Review Date dividing the result by the Base Index Figure and then rounding the figure up to the nearest five pounds PROVIDING ALWAYS that the reviewed Rent shall not be less than the Rent initially defined or any increased amount following a rent review.

*Note that the Office for National Statistics publishes the monthly figures for the “All Items” Retail Prices Index (RPI) around the middle of the next month. For example, the figure for November 2019 will be published around 15th December 2019, which will then also be the most recently published Index figure as at 1st January 2020.

Doubling rent review

Based on the example lease wording below the initial ground rent payable is £100.00 per year from 1st January 2010 and doubles every 25 years of the lease.

To calculate the ground rent payable per year from 1st January 2035 we take the current ground rent and double it.

At the first rent review on 1st January 2035 the ground rent payable will double from £100.00 to £200.00 per year for the next 25 years.

Example lease wording:

“Commencement Date”: 1st January 2010

“Rent”:

£100.00 per annum for the period 1st January 2010 to 31st December 2034 (inclusive)

£200.00 per annum for the period 1st January 2035 to 31st December 2059 (inclusive)

£400.00 per annum for the period 1st January 2060 to 31st December 2084 (inclusive)

£800.00 per annum for the period 1st January 2085 to 31st December 2109 (inclusive)

£1600.00 per annum for the remainder of the Term

"Term": 125 years from the Commencement Date

In this instance, the Rent will double every 25 years of the Term from the Commencement Date. At the first rent review on 1st January 2035 the rent will review from £100.00 to £200.00 per annum for the next 25 years from 1st January 2035.

Fixed uplift rent review

Based on the example lease wording below the initial ground rent payable is £100.00 per year from 1st January 2010 and increases by a fixed £100.00 per year every 25 years of the lease.

To calculate the ground rent payable per year from 1st January 2035 we take the current ground rent and add £100.00.

At the first rent review on 1st January 2035 the ground rent payable will increase from £100.00 to £200.00 per year for the next 25 years.

Example lease wording:

"Commencement Date": 1st January 2010

“Rent”:

£100.00 per annum for the period 1st January 2010 to 31st December 2034 (inclusive)

£200.00 per annum for the period 1st January 2035 to 31st December 2059 (inclusive)

£300.00 per annum for the period 1st January 2060 to 31st December 2084 (inclusive)

£400.00 per annum for the period 1st January 2085 to 31st December 2109 (inclusive)

£500.00 per annum for the remainder of the Term

"Term": 125 years from the Commencement Date

In this instance, the Rent increases by a fixed £100.00 per annum every 25 years of the Term from the Commencement Date. At the first rent review on 1st January 2035 the rent will review from £100.00 to £200.00 per annum for the next 25 years from 1st January 2035.

Most leases that reserve a ground rent are usually granted for a premium and are long leases (that is a lease of more than 21 years). However, if the ground rent in a lease exceeds £250 per year outside of Greater London or £1,000 per year within Greater London, and the other relevant criteria in the Housing Act 1988 are met, current legislation determines that these long leases qualify as assured tenancies.

One implication of this is that an assured tenancy can be brought to an end during the term of the lease by the landlord if one or more of the grounds for possession set out in Schedule 2 to the Housing Act 1988 are made out. This means that if the ground rent falls three months into arrears for a long lease that qualifies as an assured tenancy, a landlord has a mandatory ground to apply to Court for an Order for Possession (by way of a Section 8 Notice under the Housing Act 1988). Where a ground is mandatory, there is no discretion on the part of the Court.

GRIO will not adopt this procedure under any circumstance. Upon a leaseholder’s request, GRIO will enter into a suitable deed of variation to remove the landlord’s right to use such grounds in such circumstances (i.e. that the landlord shall not be able to claim that the long lease is an assured tenancy).

GRIO and its subsidiaries appoint Rendall & Rittner Limited (R&R) in relation to the collection of ground rent, landlord consents and property management (where relevant). If you have any queries relating to:

A ground rent payable, please contact groundrent@rendallandrittner.co.uk

Legal queries, such as the sale or transfer of a property, changes to your lease, extending the term of your lease or purchasing GRIO’s interest in your property, please contact legal@rendallandrittner.co.uk

Subletting your property, please contact sublet@rendallandrittner.co.uk or complete the subletting registration form here. Before you sublet your property, please check your lease to see if you are permitted to do so.

Consent for alterations, please contact consents@rendallandrittner.co.uk. Before you start any renovations, please check your lease to ensure that the proposed works are permitted and if prior written consent is required.

Pet consents, please contact consents@rendallandrittner.co.uk. Your lease will confirm if pets are permitted at your property, the type of pet that is permitted and if consent is required.

Changing your correspondence address, please contact

If your query is urgent you can also contact the R&R team via telephone on 020 7702 0701 or 0161 470 2900.

If you live in a R&R managed property, please refer to their Residents Portal .

If you live in a R&R managed property and you need emergency assistance from a contractor outside of normal office hours (9.00am to 5.30pm Monday to Friday excluding Public Holidays), please phone 020 3764 5587.

For landlord queries not covered by the above, please contact groundrentsincomefundinfo@schroders.com

For independent advice and guidance on residential leasehold legislation, including advice on fire safety to leaseholders living in high-rise buildings, please refer to the Government funded leasehold advisory service, LEASE.

Since 2018 and in order to address concerns regarding doubling ground rents, Ground Rents Income Fund plc and its subsidiaries (together GRIO) has offered all of its residential leaseholders with doubling ground rents the opportunity to convert their existing ground rent review mechanism to one which increases according to the lower of inflation, as measured by the Retail Prices Index (RPI), or doubling, while retaining the existing cycle of rent reviews (the Offer). Due to future inflation figures not yet being known, the Offer can only guarantee that the ground rent will increase to the lesser of RPI or the current doubling review pattern.

The Offer is consistent with the approach subsequently agreed in 2019 between the UK Government and various freeholders and developers, including GRIO, to do with ground rents that double more frequently than every 20 years. For more information please refer to the Public Pledge for Leaseholders.

We will assist any leaseholder who approaches us to request a doubling clause be converted, even if they have not previously taken up an offer of variation.

Where relevant, any such changes to a lease may be subject to agreement by the property’s Management Company or superior landlord, and the leaseholder’s solicitor may also need to contact their mortgage provider.

A leaseholder is under no obligation to take up the Offer. If they do not, all the terms of their existing lease will remain the same.

Independent legal advice

The completion of the Offer requires the lease to be varied. To complete this process a leaseholder must appoint a solicitor. For information on appointing a solicitor please visit: http://solicitors.lawsociety.org.uk/

Where relevant, the solicitor will also need to contact the mortgage provider.

Costs

Both parties will be responsible for their own costs.

Next Steps

If a leaseholder with a qualifying lease wishes to take up the Offer, they should ask their appointed solicitor to contact GRIO’s solicitor, Addleshaw Goddard LLP, by email at: grio@addleshawgoddard.com quoting the Offer and property details.

Ground Rents Income Fund plc and its subsidiaries (together GRIO) has undertaken to provide all of its residential leaseholders where the terms of their lease cause their ground rent payment to double more frequently than every 20 years with an improved offer that reflects the terms of the original leases (the Improved Offer).

Since 2018 GRIO has offered all of its residential leaseholders with any doubling ground rent the opportunity to convert their existing ground rent review mechanism to one which increases according to the lower of inflation, as measured by the Retail Prices Index (RPI), or doubling, while retaining the existing schedule of rent review dates (the Offer). Note that the opportunity to take up the Improved Offer is irrespective of whether the leaseholder has already accepted the 2018 Offer.

If a leaseholder has a qualifying lease they do not need to do anything as GRIO’s property manager, Rendall & Rittner, will contact them by no later than 15 April 2022.

Where relevant, any such changes to a lease may be subject to agreement by the property’s Management Company or superior landlord, and the leaseholder’s solicitor may also need to contact their mortgage provider.

A leaseholder is under no obligation to take up the Improved Offer. If they do not, all the terms of their existing lease will remain the same.

Independent legal advice

The completion of the Offer requires the lease to be varied. To complete this process a leaseholder must appoint a solicitor. For information on appointing a solicitor please visit: http://solicitors.lawsociety.org.uk/

Where relevant, the solicitor will also need to contact the mortgage provider.

Alternatively, GRIO has identified an independent solicitor, Slater Heelis Limited, which may be prepared to represent leaseholders. Leaseholders are under no obligation to appoint this solicitor but if they did they would represent their interests independently. If a leaseholder has a qualifying lease and has not yet taken up the Improved Offer, they can appoint Slater Heelis Limited by contacting:

Slater Heelis Limited

86 Deansgate

Manchester

M3 2ER

Email:        helen.monaghan@slaterheelis.co.uk

Website:    https://www.slaterheelis.co.uk/

Costs

If a leaseholder takes up the Improved Offer and appoints Slater Heelis Limited their solicitor's fees will be covered in full by GRIO. If they appoint a different solicitor they will be required to pay their solicitor's fees but GRIO will be prepared to make a reasonable contribution to such fees.

Next Steps

If a leaseholder with a qualifying lease wishes to take up the Improved Offer, they should ask their appointed solicitor to contact GRIO’s solicitor, Addleshaw Goddard LLP, by email at: grio@addleshawgoddard.com quoting the Improved Offer and property details.

• The cost of insuring multi-occupancy residential buildings has increased since the Grenfell Tower tragedy in 2017
• The Financial Conduct Authority (FCA) recently made several recommendations about the way the market for multi-occupancy buildings insurance operates
• The Government is due to bring forward new legislation to provide leaseholders with more information about their insurance, including replacing insurance commissions with more transparent fees
• GRIO’s standard asset commission percentage is 9.25% of premiums payable (excluding taxes). Insurance commission has been replaced with a separate, small, transparent fee for those properties with relevant defects as defined by the Building Safety Act 2022
• Across all those properties where GRIO is responsible for insurance, the current annual commission or fee payable is equivalent to an average of £26 per leaseholder (excluding VAT where relevant).
• Consistent with GRIO’s objective to deliver best-in-class residential asset management, and ahead of any new legislation brought forward by the Government, a range of actions are available to GRIO insured leaseholders to support information sharing and transparency

Context

The cost of buildings insurance to residential leaseholders and other property owners of multi-occupancy buildings has increased across the UK since building safety issues were identified following the Grenfell Tower tragedy in 2017.

Since then, the Government has introduced new building safety legislation focused on protecting leaseholders in their own homes and ensuring that those involved in the development of poorly constructed buildings are responsible for their remediation. GRIO and Schroders endorse the Government’s aims of improving building standards and helping to protect leaseholders living in their own homes from the costs of remediating building safety risk issues. It is worth noting that GRIO did not develop any of the properties within its portfolio.

In 2022, the Financial Conduct Authority (FCA) reviewed the way the market for multi-occupancy buildings operates. One of the FCA’s key findings was evidence of some high commission rates and poor practices which were not consistent with driving fair value for leaseholders. The FCA noted that in many cases the insurance commission rate was at least 30% and that commission in absolute terms had increased since the Grenfell Tower tragedy, driven by increases in insurance premiums and the supply of insurance for multi-occupancy residential buildings having contracted significantly.

The FCA’s recommendations included:

1. the insurance industry working with it and the Government to create a risk pooling solution to reduce premiums paid by leaseholders;
2. for the Government to consider imposing a new legal requirement to provide information on the insurance policy to leaseholders; and
3. for Government to consider ways to give leaseholders a straightforward and easily accessible route to challenge insurance costs.

The Government has already announced it will bring forward legislation to provide leaseholders with more information to enable them to better scrutinise their insurance costs, including replacing insurance commissions with more transparent fees. This legislation is yet to be proposed but GRIO has already implemented some of its recommendations.

GRIO and Schroders welcome the announcements by the Government and FCA, and support the three noted recommendations to improve transparency and value for leaseholders. It is contended, however, that commission is not the primary driver for increased premium costs payable by leaseholders. It is also important to recognise that, in the current climate, the work being done to place these sometimes difficult risks has increased substantially. In addition, Insurance Premium Tax (IPT) revenues by the Government have increased significantly and the tax continues to be applied even where building safety remediation requirements have been identified at a particular property, and so premiums and overall costs for leaseholders have increased as a result.

GRIO’s approach to insurance

The responsibility to insure the properties where Ground Rents Income Fund plc and its subsidiaries (together GRIO) have an interest is governed by the obligations contained within the leases. These obligations vary across properties but usually the responsibility sits with GRIO as landlord or leaseholders by way of the relevant Management Company (ManCo).

Where GRIO is responsible for insuring a property, Schroders, as its Alternative Investment Fund Manager (AIFM), arranges the insurance on behalf of GRIO as part of a wider UK and European Real Estate programme, brokered by Lockton Companies LLP (Lockton), a member of the British Insurance Brokers Association (BIBA). Doing so in this way allows leaseholders to benefit from a far bigger portfolio than GRIO in isolation, with benefits including the provision of more comprehensive, competitive cover terms versus a standalone policy. Leaseholders, where relevant, then receive an appropriate demand for payment from GRIO’s income collection agent, Rendall & Rittner (R&R).

The responsibilities for arranging and procuring adequate insurance cover are extensive when carried out professionally and comprehensively. At complex, multi-occupancy residential buildings, which is the majority of the GRIO portfolio, the list of matters to be taken into account are considerable, and include: determining the terms of cover required as appropriate for the circumstances; instruction of a recognised and experienced broker to seek competitive terms in the insurance market with a reputable insurer(s); general administration of the process (including ensuring that building cost assessment is appropriate by appointing experienced advisers); and claims coordination (including appointing a loss adjuster). There is also the need to carry the funding of insurance premiums paid to insurers prior to their payment by individual leaseholders. This process is overseen by the independent, non-executive Board of GRIO.

Where the landlord is responsible for the insurance, the commission paid to GRIO reflects this body of work, is consistent with institutional residential leasehold asset management and is subject to a fair value test. For the current insurance year (ending 30 December 2024), GRIO’s standard asset commission percentage is 9.25% of premiums payable (excluding Insurance Premium Tax (IPT) at 12% but including 0.25% commission retained by Lockton). For properties with relevant defects as defined by the Building Safety Act 2022 insurance commission has this year been replaced with a separate, small, transparent fee.

Across all those properties where GRIO is responsible for insurance, the current annual commission or fee payable is equivalent to an average of £26 per leaseholder (excluding VAT where relevant).

It is worth noting that, in addition to the small amount of commission mentioned above, Lockton is largely compensated for the services it provides via a fee paid by the insurer(s). These services may include committing an insurer to insuring a risk, producing policy documents and settling claims. If calculated as an equivalent commission percentage of premiums payable (excluding IPT), this fee usually equates to approximately 10%.

Importantly, neither Schroders nor R&R receive any commission in connection with the insurance responsibilities of GRIO. It is also worth clarifying that GRIO and its service providers do not receive commission in relation to those properties within its portfolio where GRIO is not responsible for insurance. In such instances, leaseholders should contact their ManCo for more information.

GRIO’s insured portfolio is marketed to a large number of insurers to ensure that the most competitive pricing can be achieved, both in terms of actual cost and the terms of cover available. We are also aware that it is currently unlikely that insurers would be prepared to offer cover on a standalone basis to properties with relevant defects as defined by the Building Safety Act 2022. For example, since 2020, some leaseholders at other properties within the GRIO portfolio, where a ManCo is responsible for insurance, have accepted GRIO’s offer to transfer their insurance risk onto GRIO’s block policy. GRIO and Schroders have been happy to support leaseholders in such instances. It also emphasises the importance and value of GRIO and Schroders’ portfolio policy arrangement, although this may not be available in all cases because some buildings are not insurable or would have severely restricted cover due to construction, natural hazards or an unfavourable claims history.

Finally, IPT is payable on buildings insurance at a rate of 12%, even where building safety remediation requirements have been identified at a particular property, and so premiums and overall costs for leaseholders have increased as a result. It follows that IPT earnings by Government have increased significantly. GRIO and Schroders would support a specific IPT exemption for those properties undergoing or awaiting remediation of relevant defects as defined by the Building Safety Act 2022.

Action available to leaseholders

Consistent with GRIO’s objective to deliver best-in-class residential asset management, and ahead of any new legislation brought forward by the Government, the following, among other things, are available to leaseholders:

1. Leaseholders are currently provided with a summary of their insurance policy and the wider insurance market with their annual premium. Upon request, GRIO will share with leaseholders more detailed information about their insurance, including commission in both percentage and absolute terms, the information provided to insurers to underwrite their own property and a copy of the current insurance policy wording.
2. If a leaseholder is able to find (by 31 October of any given year) a more competitively-priced comparable insurance policy that provides at least as good terms of coverage as the current insurance policy, with a reputable insurer, GRIO will consider placing that insurance for the 31 December renewal of said year.
3. Where relevant GRIO is happy to change future insurance commission payable to a fee for managing the insurance process. This would increase transparency available to leaseholders but may also increase the overall cost. This is because the fee would attract VAT at 20%, rather than IPT at 12%. This proposal is subject to a majority of leaseholders at any given relevant building being in favour, with the organisation of such a poll being the responsibility of leaseholders.
4. In lieu of commission or fees being payable, GRIO is happy to consider changes to future insurance arrangements whereby leaseholders of any given relevant building are responsible for the administration of the insurance policy. This would include arranging the collection of premiums from individuals, answering any queries or claims enquiries and managing the claims handling process, including retaining a loss adjuster. This proposal is subject to a majority of leaseholders at any given relevant building being in favour, with the organisation of such a poll being the responsibility of leaseholders. Leaseholders would also need to agree a single collective response by appointing a ‘person to contact’.

To contact GRIO in relation to the above, please contact legal@rendallandrittner.co.uk.

More generally, should leaseholders or others have any queries on residential leasehold legislation, including matters relating to insurance, the recoverability of service charges, right to manage, statutory lease extensions, collective enfranchisement or other such rights, they should seek their own independent legal advice or refer to the Government’s free Leasehold Advisory Service:

www.lease-advice.org

• Capital erosion: Where fees are charged to capital instead of income, or a fixed distribution amount is paid regardless of the Company’s performance, there is the potential that performance or capital value may be eroded.

• Concentration risk: The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down.

• Counterparty risk: The Company may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the Company may be lost in part or in whole.

• Gearing risk​: The Company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in such investments could be lost, which would result in losses to the Company.

• Liquidity Risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. In difficult market conditions, investors may not be able to find a buyer for their shares or may not get back the amount that they originally invested. Certain investments of the Company, in particular the unquoted investments, may be less liquid and more difficult to value. In difficult market conditions, the Company may not be able to sell an investment for full value or at all and this could affect performance of the Company.

• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Market Risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Operational risk​: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the Company.

• Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

• Private market valuations, and pricing frequency: Valuation of private asset investments is performed less frequently than listed securities and may be performed less frequently than the valuation of the Company itself. In addition, in times of stress it may be difficult to find appropriate prices for these investments and they may be valued on the basis of proxies or estimates. These factors mean that there may be significant changes in the net asset value of the Company which may also affect the price of shares in the Company.

• Share price risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.

• Smaller companies risk: Smaller companies generally carry greater liquidity risk than larger companies, meaning they are harder to buy and sell, and they may also fluctuate in value to a greater extent.