What Is An Indemnity Policy For Ground Rent?

indemnity policy for ground rent

Due to fresh focus in the property sector, onerous levels of ground rent continues to be the biggest reason that flat/leasehold sales are falling through, and mortgage lenders won’t lend.

The issue is when ground rent levels exceed £250 (outside of London, £1,000 in London) it becomes an AST which means that should the rent be defaulted and falls under an Assured Shorthold Tenancy agreement, the landlord would first get possession of the property, rather than the mortgage lender.

This of course lands mortgage lenders in hot water as they want to be able to protect their investment. Lenders have made a decision not to lend if the ground rent is over £250, or more than 0.1% of the property value

They also take into consideration ground rent terms in the lease, often clauses state it doubles every ten years, or rises with the rate of RPI every 10 years. The issue with this is that even if your ground rent won’t exceed £250 for 10 years and some, lenders are still being extremely cautious and won’t lend unless certain conditions are met.

Deed of Variation For Ground Rent

A deed of variation is often the first request the lender will make. A deed of variation protects both the lender, and purchaser. Typically a deed of variation in regards to ground rent will insert a new clause that states the ground rent can’t be increased for the remainder of the lease.

There are a couple of issues with a deed of variation, it stops the ground rent from increasing, but does not reduce it to a peppercorn. In this case, a formal lease extension would be a better option because it adds an additional 90 years to your lease, whilst reducing the ground rent levels to a peppercorn.

The second issue is that a deed of variation does not come cheap. With the legal fees and the premium that will be made payable, this could easily run into the region of thousands of pounds. The premium is worked out based on the amount of ground rent that will missed out on during the remainder of the lease.

These two routes remain the most favourable for getting a leasehold sale across the line with ground rent exceeding £250, however, an indemnity policy for ground rent could be a way around this.

What Is An Indemnity Policy For Ground Rent?

An indemnity policy for ground rent is called forfeiture of lease indemnity. If the landlord exercises their right to regain possession of the property because the leaseholder falls into ground rent arrears, the lender would be protected.

There is a limit on indemnity of up to about £234k of a property price, and it ONLY protects the lender, not the purchaser.

The indemnity insurance is a one off payment and is usually anywhere between £50-£100, this depends on the value price of the property that has been insured. This is payable once and can be organised by your solicitors, it should be made payable by the seller of the property.

Mortgage lenders are clamping down on this and it will depend on the lender whether an indemnity policy is accepted or not. The purchaser has to also be happy with the fact that this is only protecting the lender, and not their own investment. You can check the updated lenders financial handbook to see what specific lenders will accept indemnity cover.

Selling a flat with ground rent over £250 is nothing but a headache, with many leaseholders having to spend thousands of pounds for a get out clause.

Ground Rent Indemnity Policy Cost

A ground rent indemnity policy can cost anywhere between £50-£100 in most cases, this is dependent on the price of the property that is to be insured.

I personally explored both a deed of variation and indemnity insurance, but I had to give the indemnity policy a shot because £14k worth of costs for a deed of variation just wasn’t going to happen. Luckily, the indemnity policy was accepted by the lender, costing me just over £50. The lender and purchaser were both happy with this option, and I was able to say goodbye to leasehold forever.

If you are in the process of selling a leasehold, there are options, do take a look at the National Leasehold Campaign Facebook group which is filled with leaseholders and advice from those going through the same issue.

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Nicole Sage

Nicole Sage is the founder of Sleek-chic Interiors and is a highly experienced interiors writer and skilled home renovator who has a passion for all things design. She has been featured as an authority at Pinterest, Ideal Home, Daily Mail and in countless other interviews. For 8 years, Nicole has written, observed key interior trends, renovated and undertaken interior short courses at the renown KLC school where she has gained her grounding interior design principles. With a keen eye for detail and a love of creativity, she shares her expertise on the latest interior trends, practical DIY tutorials, and styling inspiration to help others transform their homes into stunning spaces. With a commitment to delivering informative and engaging content, Nicole inspires and empowers readers to explore their own unique sense of style and create beautiful, personalised interiors. Contact her at hello@sleek-chic.co.uk for interiors advice, colour questions and any commentary.

8 thoughts on “What Is An Indemnity Policy For Ground Rent?”

  1. Hi There,

    I’m a seller in a similar situation, ground rent goes up £250 every 25 years, is due to increase to £500 in 13 years time. Can you please advise which lender accepted the indemnity insurance from you – out of curiosity?


    • Hi Louise, fingers crossed you can get it resolved with a lender, unfortunately I wasn’t privy to this information from the purchaser. However, it’s worth looking at the financial handbook online for each bank and reading their section on ground rent as it will say if they accept indemnity policies. Also, I’d recommend posting in the National Leasehold Campaign FB group and asking the same question as I know someone will have an answer, hope that helps! https://www.facebook.com/groups/786983251448976

  2. I am also in a similar position, I have had a lifetime mortgage refused because of ground rent doubling every 25 years. Any ideas on who will lend in the lifetime mortgage????

    • Hi Alan, sorry to hear you’re going through this now. All lenders seem to be continually changing their lending requirements, but if you aren’t already I really would consult a mortgage advisor, because if there is someone who will accept it they’ll be the ones to find who does. I’d also see if the sellers are willing to start a lease extension process to remove this ground rent clause. Hope you can come to a resolution of some sort. Best wishes, Nicole.

    • Hi Gary, no you won’t need an indemnity policy if you’re a cash buyer. You may want one though if you’re thinking of selling in the not do distant future as it would then be passed onto the new purchaser. It’s likely ground rent laws will change in the next few years in our favour anyway. Thanks, Nicole.

  3. Hi Nicole,

    Can you please let me know which insurance company your policy was from? My solicitor has quoted £250 + £70 arrangement fee 🙁

    Thank you.


    • Hi Paula, please accept my apologies for the late reply, I have just got back from holiday, wow that charge seems exceptional for this, I did have to pay an arrangement fee too but as I had to get another indemnity policy I didn’t pay this twice. I wasn’t actually told who the insurance company was, so sorry. I know the amount is more if the property price is more expensive, mine was £135k. Sorry I couldn’t provide any more info to you. Thanks, Nicole


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