Opinion

Chris Blythe: time to fix the leasehold rip-off

14 February 2017

Chris Blythe

It was with some disappointment to see the underwhelming 240 words set aside in the Housing White Paper on the matter of leasehold and the exploitation going on at the moment.

Sure, it says: “We will therefore consult on a range of measures to tackle all unfair and unreasonable abuses of leasehold.” But really this just prolongs the abuses and will accelerate before any changes are made.

I would have preferred to see consumers’ interest put first and if necessary any changes to legislation could be backdated to negate any dash to beat the changes by developers and freeholders.

At the heart of the issue is the relatively recent practice of shorter leaseholds with increases in ground rent included in the contract not properly explained or hidden. Some may say is the conveyancer’s job to explain it to their clients, but in a market where there are more buyers than sellers, these sellers can and do abuse their position. Along with management and service companies, again often connected to the developer, the leaseholder gets a bad deal.

It gets worse, though, as freeholds get sold and passed on to speculators who either impose big ground rent increases or charge a fortune for the freehold to be bought out.

There is no real reason for this practice other than house builders taking advantage of buyers desperate to get on the home ownership ladder.

It is clear that the Commonhold and Leasehold Reform Act 2002 has failed to put the consumer in the driving seat because it’s the developer/housebuilder/freeholder that decides on the arrangement at the start of a development.

Maybe it’s time to make commonhold the default arrangements for residential developments that would normally be done leasehold and ensure transparency from the start. As a further measure, current leasehold developments that were established with less than 100-year leases should be converted to commonhold at the freeholder’s expense.

As a parent watching my son battling to get on the housing ladder it’s been a real eye opener looking through some of the leasehold agreements around – legalised extortion in some cases. When he asks me why house buyers are being exploited in this way I find it difficult to come up with any rational answer other than greed.

Maybe this exploitation of leaseholders will become the next PPI.

Comments

Thank you for this article. As a leaseholder affected by this outrageous greed of the developers I feel trapped. I have set up a facebook page called "National Leasehold Campaign" which now has almost 1,000 members who are in disbelief this has been allowed to happen. This is our homes, our futures that developers have sold...

katie kendrick, 15 February 2017

As a professional practice we too have seen property companies selling new leases with escalating ground rents far in excess of the traditional nominal sums. Higher ground rents are more cost effective to collect and a valuable asset when capitalised.

The higher ground rent can easily be valued.

The answer for the purchaser is to offer less for a property with a high and escalating ground rent than for a property with a nominal ground rent.

Our immediately post-university children purchasing a flat in south-west London had the option of purchasing very similar flats, one with a peppercorn ground rent and a share of the freehold, or the preferred flat with a high ground rent escalating every 25 years. The difference in ground rent was valued at £20,000, so the successful bid was made accordingly.

No rip-off. The landlord received a lower capital sum, but retained the benefit of the ground rent income as part of a large portfolio, which could be sold on the open market, or acquired by the lessees under existing legislation, i.e. by seeking a new long lease at a peppercorn ground rent and buying out the existing ground rent provision.

The answer is to seek advice and pay the right price for the property taking into account its benefits and disadvantages.

Richard Birchall

Richard Birchall FRICS MCIOB, 16 February 2017

Richard, you have cited one example where it might be argued that the deal is reasonable. In the vast majority of cases it is not and homeowners are falling victim to sharp practice in their thousands. The leasehold market can make a property worthless and it is a little known and understood process for any ordinary purchaser and many conveyancers. This campaign needs to succeed.

Jon Skelton, 17 February 2017

Richard. This may be true in an isolated case where the seller was willing to negotiate however this is rarely the case, particularly with new builds with Persimmon, Bellway and worst of all Taylor Wimpey.
These developers' solicitors drafted these onerous and well hidden clauses and sold the freehold on to offshore pension funds who can quote any price to protect their income streams and even after mutual negotiation it is still a large but unknown capital sum when the property is purchased. No transparency of contract and no future idea of the capitalisation value!

Mike Rooke, 26 April 2017

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