UPDATE 22 August 2022: This article is amended to address the resale prices that are listed at the bottom.
So, Barratt has got away with it. Like other plc housebuilders it spread the scourge of leasehold houses around the country, played games with lease lengths and ground rents, and eroded the public’s understandably reserved trust in this sector.
It was a lesser offender than Taylor Wimpey and Countryside Properties plc, which both sold properties with highly aggressive 10-year doubling ground rents, which Barratt did not do: indeed, Countryside Properties plc, whose executives other housebuilders blame as the source of the doubling ground rent game, was still selling them in May 2017, long after LKP had blown open the scandal in autumn 2016.
Nonetheless, LKP told The Independent yesterday:
“Housebuilders sold leasehold homes often to buyers subsidised by taxpayer loans with purposely designed investment assets squirrelled into them, and then sold these lucrative freeholds to private equity punters, often based offshore.
“This practice has eroded the moral authority of this sector, along with the post-Grenfell building safety scandal, and the public must never allow these subsidised homebuilders such un-scrutinised freedom again.”
Leasehold
16 August 2022: The CMA is positively engaging with firms who purchased freeholds from Taylor Wimpey in order to secure formal commitments from those freeholders to remove doubling clauses from their leases, and any doubling terms that were converted to be based on the Retail Price Index (RPI).
If you wish to provide information to the CMA please use one or more of the following email addresses below:
Groundrents.leasehold@cma.gov.uk
Servicecharges.leasehold@cma.gov.uk
Permissionfees.leasehold@cma.gov.uk
Misselling.leasehold@cma.gov.uk
Miscellaneous.leasehold@cma.gov.uk
Yesterday the Competition and Markets Authority announced:
“Following careful scrutiny of the evidence gathered, the CMA concluded that it was insufficient to support a clear legal case for the CMA to secure collective redress for Barratt leaseholders under its consumer law powers …
“Barratt’s sales practices have changed, and they no longer sell leasehold houses.”
Hardly a career enhancement, but should Barratt – arguably a lesser offender than Redrow or Bloor – have been let off the hook?
Certainly not, is the view of its former customers at Steinbeck Grange in Warrington, where buyers felt that they were manipulated into buying leasehold houses, some with only 125 year leases.
The freeholds appear to have been sold to Wallace Estates, which belongs to Italian Count Luca Rinaldo Contardo Padulli di Vighignolo, of the hedge fund Camomille Associates. FirstPort provides the management, which the leaseholders claim over charges them.
Three of the five recommended firms of solicitors on Barratt’s panel – which buyers say they were leant on to use by the sales staff – ceased trading after this part of the estate sold out in 2010, it is claimed.
It is also said that those who insisted on using their own conveyancers “appear to have 999 year leases”. And some of the homes were even sold freehold.
Many of the woes at Steinbeck Grange were reported in The Sunday Times last April in an article by Melissa York:
The Steinbeck Grange leasehold scandal
Six months after moving into her new home, Carolyn Bellers received a bill for more than £800 that she did not understand. It was from Solitaire, a property management company she had never heard of and it was for the maintenance of communal carpets and lifts – but she lived in a mews house.
The estate’s problems have also been reported locally:
‘Lies’ and ‘deceit’ faced by residents caught up in leasehold scandal
ANGER is growing among residents trapped in the leasehold scandal as a developer faces accusations of strategically deceiving people and mis-selling homes. Leasehold ownership, most commonly found in flats, means purchasing a property for the duration of a usually long-term lease rather than owning it outright.
The local Conservative MP Andy Carter is quoted in The Sunday Times: “Some of the practices feel to me very dodgy after speaking to solicitors in the town. We have to clean this up. We can’t have this for the most expensive purchase anyone will make.”
Mike Caroll, on behalf of the “victims of Steinbeck grange”, told LKP:
“I am absolutely disgusted that this case has been dropped given the fact that myself and fellow residents have provided collective evidence of fraudulent miss-selling by this developer.
“Myself and residents where interviewed by the CMA after our case was provided to them to investigate by our MP Andy Carter, who met with their former chair Lord Andrew Tyrie at Westminster.
“I personally was interviewed for a number of hours. All of the residents interviewed were informed that we had quite clearly been miss-sold our homes and we have evidence to substantiates this. This includes evidence from ex-employees highlighting that they where not in possession of said leasehold and management information at the point of sale, not to mention the conduct of the developer since victims brought it to their attention.”
As most of the sales occurred before 2010, the CMA also feared that the issues were timed out for effective action by limitations rules.
Frankly, it is difficult to believe that the owners of homes at Steinbeck Grange are just making all this up and in spite of some inconsistencies is appears that Barratt had a pretty pushy sales op underway here.
However, in spite of the issues that campaigners’ have highlighted, resale prices on the Land Registry are almost all positive compared with initial purchase price: the one exception being long ago in 2010.
Campaigners have taken issue with LKP publishing these figures: some of the properties listed below either are not leasehold or do not have the shorter leases of 125 years, they claim. There may also be property management contract differences.
We are also aware, as reported in the Sunday Times, of one leaseholder losing thousands of pounds owing to errors in her lease.
UP
16 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2018-03-01 £220,000
A 2008-06-27 £204,250
24 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2021-03-05 £290,000
A 2008-11-14 £258,950
29 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2018-09-07 £335,000
A 2010-10-27 £290,575
37 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2021-05-21 £357,500
A 2010-12-10 £250,000
51 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2019-10-04 £225,000
A 2009-05-29 £150,000
53 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2017-06-21 £190,000
A 2014-05-29 £173,500
A 2009-12-18 £173,250
55 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2020-11-12 £205,000
A 2009-06-12 £159,000
59 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2019-05-01 £200,000
A 2009-10-21 £158,000
DOWN
8 Liberty Close, Warrington, WA5 8DS
Transaction history
A 2010-07-15 £222,000
A 2008-06-26 £245,695
Related posts:
CMA kicks housebuilders: Countryside Properties and Taylor Wimpey ‘unfair contract terms’ over rip-off ground rents; Persimmon and Barratt ‘possible mis-selling’ of homes
LKP vindicated by devastating CMA report into mis-selling of leasehold homes
Newcastle leasehold house owners stuff attempt by Barratt and Keepmoat to sell their freeholds
Cracks in the leasehold racket as Barratt London drops ground rents
Bellway Homes attempts to explain why leasehold houses are just fine. And it is self-interested rubbish …
Leaseholders duck £430,000 legal bill to block celebrity architect Sophie Hick’s underground house next door
After the First World War, the Government sent in the Black and Tans to restore order in Ireland. Much the same could be said of the Government sending in the CMA to deal with the issue of 10 years doubling ground rents. I would not be surprised if it was not made clear to developers that if they want to participate in future help to buy schemes or build infrastructure projects, they need to deal with the problem of these types of rent reviews.
The Government is keen to keep its promise to deal with the problems that those type of ground rent contracts can cause
It rather suggests that the Government would be unable to cap or reduce ground rent terms in existing leases, as there would be an issue with compensating the freeholder for the loss of future income.
The freeholders would argue (aside from the 10-year doublers) that the ground rent stream was an integral part of the consideration agreed in negotiations before the signing of the lease, with both parties being professionally represented. Arguments by leaseholders that the ground rent is for no service, or was written in legal speak or not understood or is part of our feudal system and they had no choice but to agree to the terms is not going to gain traction in the European Court of Human Rights which is where the case will eventually end up.
What of the many lease extensions where the landlord takes a lower premium in return for a higher rent? In those negotiations, both parties are usually professionally represented, with the lessee having a solicitor and a valuer. The sole matter on which the parties are negotiating is the lease term, the rent, the premium and its review pattern. Negotiations are often over months. Why should those deals be unpicked? What can possible arguments be advanced to support adjusting those deals?
Further, the sums of a few hundred pounds a year hardly warrant a challenge to the European Court of Human Rights. If the ECHR did agree that the rents can be capped, it would open the floodgates to all sorts of claims to vary contracts where one party afterwards decides in hindsight the deal agreed may not be best for them.
Again and again, I make the point that there is nothing wrong with a ground rent; whatever its review pattern is PROVIDED, the Net Present Value (NPV) of the ground rent is disclosed BEFORE the lessee commits to the terms of the lease. The Government set the discount rate used. In that way the lessee can ensure that the financial burden imposed on the property by the imposition of a ground rent can be reflected in the premium they pay.
The point is many of these buyers were encouraged to use the developer’s pet solicitors (new kitchen, carpets or other inducements offered by sales staff)- who failed to warn of onerous lease terms, some solicitors subsequently went out of business. Buyers were told by sales staff at point of sale that the freehold could be bought for a low price after 2 years. When buyers enquired later, they found the freehold had been sold on from under them by the developer to a 3rd party investor, who now wanted a much higher price for the freehold. Evidence given to CMA, Parliament Select Committee and others. So your argument is incorrect, and these new freeholders are effectively handling “stolen goods”.
Re ground rents – assured tenancy difficulties if GR above £250 outside London, difficulty getting a mortgage also if annual GR >0.1% of property value or above £250. So existing GRs need to be capped, certainly in an enfranchisement calculation for the greater good of consumers and the housing market. RPI clauses worse than most doublers right now, equivalent to a 6 year doubling interval with 12% annual RPI. High inflation forecast for the next few years. The leasehold market has obviously failed, excessive rent seeking is widespread, therefore action is needed.
I have a mobile phone contract with O2 where the monthly payment increase each year by the RPI plus 3.4%
If ground rents are to be capped, why can not the same argument be advanced for having my O2 contract varied or capped. It was also written in legal speak, unlike leaseholders I did not have the time to review the contract or encouraged to have legal representation.
O2 would argue that they provide a service, but the freeholder would argue that the ground rent was part and parcel of the consideration. The freeholder wanted a premium of £XXX,XXX and a regular income stream of YYY per annum. If the ground rent is not to be what was agreed, why then should the freeholder not be adequately compensated ?
Some lessees were ill-advised by solicitors who were not acting correctly – that opens up a number of possibilities for redress, but it does not undermine the principal of a ground rent being an integral part of the consideration for the granting of a lease.
The issue of the interaction with the ground rent going above £250 and the Housing Act 1988 and mandatory forfeiture I am sure can be addressed in legislation and I am sure it will
The arbitrary limit of 0.1% was put forward by mortgagees has not been articulated, it appears to have been seized upon following a remark made in a Tribunal case. A ground rent is only onerous if the financial burden is not appreciated BEFORE taking on the lease. The larger the rent the more likely it will be that a purchaser will consider the yearly outgoing and adjust their offer price downwards, so rather bizarrely the less likely the rent will be onerous.
A flat worth, £300k with a peppercorn rent if sold instead for £150,000 with a ground rent of £5,000 linked to the RPI the purchaser with this higher rent cannot claim his rent is onerous because clearly the burden of the rent is clearly reflected in the price paid. The ground rent is not for no service, it is there to help lower the acquisition price and an integral part of the deal.
Stephen your mobile phone contract price increases are for the provision of a service and at any point you can walk away and choose another provider. Ground rents have long been seen as problematic especially in the circumstances where consumers. may be pressured into making non economically rational decisions. There were many developers who exploited the governments historic lack of interest in helping ensure a fair market. We have even seen circumstances where the same type of leasehold homes have been sold for more than equivalent freehold homes on the same site. As one developer admitted to a select committee he sold the freehold of peoples houses to third party investors because the law allowed it. Fortunately we have helped bring the whole issue to an end on new build homes. Let’s hope the government does something about existing homes soon.
I think you have missed my point
The developer set out in a draft document ( i.e. a lease) that the property would be demised for say 125 years or for a premium of £XXX,XXX and a yearly payment of £YYY . That deal is considered over a couple of months by the purchaser and their solicitor, with input from a surveyor ( particularly in a lease extension) so unless either of the following conditions are met then I don’t see why the contract should be retrospectively changed
The two cases where I think retrospective changes should be made is
1) Where the solicitor was acting in the interest of the developer
2) Where the ground rent terms are drafted in a way to manifestly destroy value this could be in the case of 10 year doublers.
Therefore, any initial rent regardless of its size if linked to the RPI or doubles every 20/25 or 33 years should be left alone. Why should an initial ground rent of £500 be lowered to £250 . The lessee and their solicitor would have clearly seen that , to suggest it is somehow unfair and not reflected in the price paid is frankly ridiculous
Buyers “tart up” the kitchen/bathroom which enhances the price but in reality the handiwork is short-lived, there is no legislation as yet to outlaw such practices
Buying a home is a commercial transaction and if the buyer is represented by professionals genuinely acting in their client’s interest what legal ground is there to suggest that taking on a financial burden of say £350 per annum ( clearly set out in the lease) is somehow so unfair that the government should come to the rescue and save the leaseholder from terms they had hitherto agreed to
What the government should do is require the financial burden imposed on the property by the ground rent terms to be calculated and shown next to the premium, so buyers can take an informed view before they commit to the terms. That is what the Consumer Credit Act requires happening in credit agreements, the APR has to be disclosed, so buyers can compare one credit agreement with another
Stephen is a ground rent investor. “Again and again”, and again, he makes the same point whilst ignoring buyers solicitors were almost always builder appointed. Also, Crispin Blunt is worth quoting once more – “Present-day “onerous ground rents” are, more likely than not, the resultant of unconscionable conduct carried out by one sector of society who have superior information flow (developers, freeholders’ funds, financiers, solicitors) at the expense of an unsuspecting and more naive part of society (consumer homebuyers).”
Leasehold is morally repugnant and, despite it not being a statute, is by any definition a crime. Those who defend leasehold are the lowest of the low.
I notice that whenever Stephen is challenged on breach of Right of First Refusal (RFR), his customary reaction is to ignore it.
The idea that compensation be paid to any freeholder that, as Simon rightly says. purchased “stolen goods” is reprehensible. It would also be criminal as the original reforms in the Commonhold and Leasehold Reform Act 2002 made it so.
Simon and representatives of many millions of existing long leaseholders have since 2017 held back waiting on the recommendations of the Law Commission, CMA, to enable Government to implement leasehold reforms for existing leaseholders. As the Law Commission has already determined that RFR will be redundant with the new reforms, leaseholds that were stolen illegally, as Simon says (RFR), are still waiting patiently on the “easier and cheaper” terms promised by Government that will serve also to resolve this. And anyone, whether in or out of government, who now acts to frustrate reform for existing leaseholders in this years upcoming parliament, could find themselves very easily acting in a conspiracy to commit fraud.
If there was any danger that this could be the case, then “levelling up” will take on a whole new meaning, as in 2024 upwards of six million existing leaseholders will tell Liz, Richi or whoever to go whistle Dixie (and send the rest to jail).
As stated and repeated over the past year by Government ministers including one B Johnson, and following the first tranche of reform law, the second tranche for existing leaseholders must be implemented as promised over the next parliamentary year (that is before next summer).
Houses, as opposed to flats, were outside the provisions of the 1987 Act that gave rights of first refusal
Therefore how can those freeholds be “stolen” from lessees if they are subsequently sold ?
Where lessees were promised the freehold during their purchase of their leasehold house and the contract failed to address this then that is a failing of the lessee solicitor and poor practice by the developer – here the CMA and trading standards have in some cases regularised the position
The Leasehold Reform (Ground Rent) Act 2022 went though parliament fairly quickly and easily – it took nothing away from those who have holdings in such investments . The next phase would take away value from the Great Estates in London and the insurance industry and therefore it will be challenged all the way to the European Court of human rights unless the correct level of compensation is paid.
Neither you or anyone else on the forum can articulate why a freeholder should have the initial ground ground rent capped in the following circumstances
A flat is offered for £xxx,xxx with a ground rent of say £350 linked to the RPI . The terms are set out not only in the marketing details but in a specific schedule in the lease. The lessee instructs a solicitor and a surveyor and after two months or so of correspondence on the terms of the lease the deal goes ahead. Afterwards there are protestations that this all unfair and the rent should be capped or indeed abolished – the arguments put forward are:-
It was written in legal speak
The developer is getting a second bite of the cherry
Its part of a feudal system
It’s for no service
They had no choice but to agree
Those above arguments seem wholly inadequate in seeking to displace contract terms – we have a very advanced legal system and our contract law is highly regarded – if such arguments were to be successful I think many would think we have lost the plot
Every developer knew they were exploiting a loophole in the law. As the Bellway chief exec told the Select Committee he did it because the law allowed it. As for ECHR rights of the freeholders – like many other things the law can change the rules. The advice given to the Scottish government was rather different to that given to the English Law Commission. With so many freeholders arguing they should not be made to pay to remediate their buildings its all looking a bit as if they want things both ways?
Every developer knew they were exploiting a loophole in the law
What loophole were developers exploiting ?
Stephen,
I refer to flats, and I refer to breach of RFR where the freehold to the premises (eg 60 flats) was sold unbeknown to the qualifying long leaseholders. That is, seller ignored s5 and buyer likewise on s3A. This is criminal under the Commonhold and Leasehold Reform Act 2002.
I expect the Law Commission recommendations for existing leaseholders in such circumstances once enacted to be on “simpler, easier, and cheaper terms” than the original criminal breach.
There are certain types of disposal that fall outside the 1987 Act – a sale of the share capital of the company that owns the freeholder does not require a Section 5 notice to be served. This often happens when large developments are sold
That does not make the transfer illegal so far as the 1987 Act is concerned. It would also not trigger any obligation under Section 3A
You might be being a bit over delicate in saying certain types of disposal fall outside the 1987 Act. Why not say as soon as with any new legislation the landlords have the funds to work out how to circumvent the law. That’s exactly what happened with both the 25% rule (with developers encouraged to build 26% or more to avoid the intention of the 87 Act and with both pre emption and packaging in an SPV and selling the SPV owning the freehold which are often used to circumvent what 87 was trying to do.
The reason we keep having to have major reforms every 10 or 20 years is because common-law decisions also end up almost always working for those with funds to bring major litigation. Whether that be social landlords wheeling on the QC or private landlords making challenge uneconomical or supposedly ethical groups feeling that maximising income is perfectly justified within their ESG rules
Stephen,
You really do seek to obfuscate!
Am referring to 100% residential blocks of flats. RFR breached and criminal as my post above. .
Stephen,
You really do seek to obfuscate!
I am referring to 100% residential blocks of flats. RFR breached and criminal as my post above.
Simon also – “they found the Freehold had been sold from under them to 3rd party.”.. And as Simon says, this evidence now in hands of Law Commission, APPG, CMA, et al.
We now expect Government to do its duty, and with existing support of all parties get on with it without further procrastination, obfuscation, or as in certain quarters, outright subterfuge.