Beware the lease scam that could cost you almost everything.

How 1 paragraph cost an investor £140k in just 2 years!

Just recently i was contacted by an investor with a problem i haven't come across before so thought i'd share to warn our investors and landlords.

In 2015 the gent in question, "Peter" had purchased a 1 bedroom flat in South London from auction house Barnard Marcus for cash believing the low price ensured he was getting a bargain, however this property was a late entry into the auction and the auctioneer wasn't given the full lease before auction.

Months after completing on the purchase, refurbishing and tenanting the property, Peter received communication from the freeholder drawing his attention to an increase in the ground rent, due to take place in 2018, after questioning this with the freeholder and his solicitor Peter found the paragraph in question.

1.2    To pay the initial rent of £375 per annum for the first ten years of the term hereby granted and then the Annual Rent during every successive 10 year period of the term which is twice that which it was the previous 10 year period.

Now this lease was granted in March 1978 and so in 1988 the amount rose to £750 per annum and so on, so that next March the cost becomes £6000 per annum. Peter has tried to fight back against the freeholder but has since discovered that he has done this many many times before and become very rich from doing so. See here for more info on him.

Unfortunately Peter is now looking at taking legal action against his solicitors for negligence but after having the property valued by 3 Estate agents and a second auction house has been told the property is now worth no more than £100k leaving him almost £140k out of pocket.

Although we all love a bargain and a "deal" there is definitely a lesson in being cautionary here and reading all the paperwork.