Ground rent Increase linked to RPI but floored at minimum of 2.5% per year. Is this reasonable?



New Member
Hi guys,

We are first time buyers going through buying a leasehold flat in London (the building is around 5 years old) so not very sure whether this is a reasonable clause or not. So far we found more information on doubling ground rent. We are a bit cautious of how ground rent will increase for this leasehold and am wondering if anyone has some insights here:

*The current ground rent is set at £500 per annum

* Ground rent will be reviewed and increased every 10 years

* Increase in ground rent will be calculated as the compound of RPI for the 10-year period

* For example, if RPI is always 2.5% during the 10-year period, the increase is calculated as: (1 + 0.025)^10 - 1 ≒ 28%

* In the above example, the new ground rent after the review will be: £500 + £500 * 28% = £640

* There's an additional clause in the lease saying that *if RPI is lower than 2.5% for some year, RPI for that year is assumed as 2.5%* for the purpose of the above calculation.

The current ground rent of £500 feels a bit expensive, but it's still ok. I feel review in every 10 years is standard as well. However, is it common to have ground rent increase tied to RPI and also *floored at 2.5% per annum*?? I've found it difficult to figure out how these conditions on ground rent affect fair value of the property. I've heard that the government is trying to do a reform on leasehold, but it's not clear how it will affect the existing lease.

Any comments/advice appreciated, thanks in advance!
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New Member
To buy out that ground rent the capitalization rate would be around 2.5% to 3% - but say 2.75%

So if the rent is around £600 then £600/ 0.0275 = 22,000 -

My simple formula works if the term is very long - the amount to buy out teh income would be less if the term is less than say 110 years

Therefore, ensure that the value of the ground rent is reflected in your offer - Ground rents are not a problem even if they are 10-year doublers PROVIDED that you calculate the NPV of the rent and ensure it is reflected in your offer