As government – and the Law Commission – reel from a barrage of special pleading by housebuilders over the government’s proposals to set ground rents as low as zero, their lobbying efforts were considered in London’s Evening Standard yesterday.
It featured contributions from the soon-to-be-let-go CEO of McCarthy and Stone Clive Fenton and Spencer McCarthy, of Churchill Retirement Living. Spencer is the son of John McCarthy, founder of McCarthy and Stone, who sold out at the height of the property boom a decade ago.
Both deplored the prospect of an end to ground rent, while Sebastian O’Kelly, of LKP, urged government to be robust saying ground rent is “for no defined service whatsoever”.
Spencer McCarthy said: “Without it we won’t be able to deliver the volume of new homes that are needed to meet the demands of our ageing population”.
But as BBC R4 MoneyBox pointed out last Saturday, the volume retirement housebuilders are “insignificant” in the market of downsizing pensioners, given that only 161,000 retirement homes have ever been produced for sale, according to Mr Fenton, who was interviewed.
This prompted interviewer Paul Lewis to say:
“So it is a broken model, isn’t it? People do not want it. They don’t want to pay ground rent. They don’t want to pay big service charges. And they don’t want to pay more than for an ordinary flat locally on the open market.”
Business focus: Cracks show for developers on ground rent tremors
The boss of McCarthy & Stone, a UK property giant that specialises in building retirement homes, is the sort of man who would vehemently disagree with Ernest Hemingway’s assertion that “retirement is the ugliest word in the language”. So it is with painful irony that Clive Fenton has just found himself “retiring” from the board at just 60 years old.
Missing from the Evening Standard article was any reference to ARCO, the Association of Retirement Community Operators, which has publicly stated that there is no need for ground rents. Or Legal and General, which entered the retirement housing market last year, and echoes the views of ARCO over ground rents.
A question legislators and civil servants need to ask is: why do so few British pensioners want designated retirement housing?
Only 2 per cent of over-65s live in them, compared with 12% in North America and 17% in Australasia.
Might these reasons be a factor?
1/ Two Office of Fair Trading investigations into the retirement housing sector: one finding that exit fees on resale were “likely to be an unfair contract term”; one finding that 65 retirement sites around the country had been systematically cheated in a bid rigging scam over electronic doors orchestrated by Peverel / FirstPort, which has a near monopoly on the management of retirement flats.
2/ Freeholds with their ground rents and other income streams being sold off to speculating financiers, who often hide their beneficial ownership behind nominee directors and are based offshore.
3/ Repeated and unending complaints about rip-off service charges, as heard in courts and Parliament. McCarthy and Stone’s £1 million libel attack on The Daily Telegraph in the early 1990s, which ended in debacle, shows how long-standing these controversies are.
4/ Retirement flats often plummet in value on resale, having been sold new for more than equivalent local housing in the first place.
Abysmal retirement housing values revealed on the Land Registry – Better Retirement Housing
Campaign against retirement leasehold exploitation examines official re-sale prices for McCarthy and Stone, Churchill Retirement Living, Audley Retirement, Retirement Villages, Retirement Security, Anchor and Pegasus A dismal picture of retirement housing values on re-sales is revealed by Campaign against retirement leasehold exploitation from figures in the Land Registry.
The volume retirement housebuilders build very few retirement flats and their past actions explain why they are unlikely to be building very many in the future.
Pensioners have every reason to be wary of these products, and to downsize into ordinary smaller flats and bungalows.
The Evening Standard quoted Richard Silva, “a principal” of Will Astor’s Long Harbour residential freehold fund piously supporting some drivel about “greater regulation of the industry”.
Industry? For goodness sake.
He added that a ground rent ban “will reduce significant investment into the residential sector, and remove a much needed safety net provided by professional freeholders to homeowners”.
Well, in the case of Long Harbour we will have to take his word for it that they are “professional”: these private equity speculators hide their beneficial ownership behind nominee directors of the Sanne Group headquartered in Jersey and are often based offshore.
Also adding his pennyworth to the article is Donagh O’Sullivan, CEO of the Stephen Conway’s Galliard Homes, who thinks a zero ground rent would deter him and others “committing to certain developments”. He says: “It would be a daft move.”
Galliard is the developer of New Capital Quay in Greenwich where 1,000 homeowners have their lives on hold because Galliard, which still owns the freehold and manages the site, built it with the now-flawed Grenfell cladding. An unseemly squabble is afoot between Galliard and warranty provider NHBC over who pays, with the possibility that leaseholders may have to.
But contrast Galliard’s gormless aggression at New Capital Quay with Taylor Wimpey agreeing to pay the cladding bill at Glasgow Harbour. Of course, in Scotland there is no freehold owner to muddy the waters and the flat owners have a direct legal connection with insurance policies, warranties and in all subsequent litigation. They are not tenants unlike the leasehold “home-owners” in England.
New Capital Quay cladding may cost £7-10m, while NHBC sends in experts – and libel warning to BBC
Examining the leasehold sector, the government is peering down the manhole cover of the murkiest place in the residential property sector. And it does not smell of roses, either.
People with lots of money are hitching a ride on the homes of people who do not have very much.
Cut it out.
Ground Rents Swings To Annual Loss On Investment Property Revaluation
LONDON (Alliance News) – Ground Rents Income Fund PLC on Wednesday swung to a loss after its property investments were revalued due the UK government’s proposed leasehold reforms. The trust recorded a pretax loss of GBP5.0 million for the year to the end of March, compared with GBP8.0 million profit reported the prior year.
Related posts:
Housebuilders shares crash over ground rents, with McCarthy and Stone down 10%
Ground rents to be allowed in retirement housing, says government
Did government cop-out on retirement ground rents stuff new thinking in the sector?
Please exempt retirement housebuilders from ground rent ban, pleads Sir Desmond Swayne
Government will cave in to retirement house builders over ground rents, says Times
Prime Minister ‘not ruling anything out’ with freeholders and builders over responsibility for Grenfell cladding
It does seem that the entire ground rent scam is starting to unravel at quite a pace. Keep up the onslaught all at LKP!.
All the best.
M&S, Churchill and others should count themselves lucky that they have been allowed to charge extortionate ground rent for the last 30/40 years.
Thousands of flats, for 40years at £500pa must amount to £billions paid out in ground rent. Money paid out for no service at all and which should have been in pensioners pockets.
These retirement housing reprobates who pick on the bones from the vulnerable elderly hate being exposed like this. This is greed for the few and are exposed as having no real impact on the housing needs for the over 65`s. It`s all about profit for the few. Name them, shame them and destroy their business model bit by bit.
We must also push to end ground rents on the older model of retirement homes sold off to GR speculators. End ground rents altogether ideally.
If the “justification” for McCarthy & Stone ground rents is that areas of developments cannot be sold, how can it be that residential house managers flats have been sold at older McCarthy & Stone developments?
Am I correct in believing that McCarthy & Stone ground rents increase every 15 years in line with the higher RPI at a time when many are changing to the lower CPI?
Am I also correct that if RPI falls below 2%, there is a stipulation in the lease that the ground rent can increase by a minimum of 2%?
The Evening Standard followed this up with a further article yesterday (28th June):
‘McCarthy weathers problems with interim boss’:
“Struggling retirement builder McCarthy & Stone drafted in a stop-gap chief executive today. … Fenton will go at the end of August, but the firm has called on chief operating officer John Tonkiss to fill in from September while it hunts for a permanent replacement. … chairman Paul Lester (will be) “spending more time with the business helping the executive team to develop the new strategy for the group.” … ”
How about this for a new strategy:
Address some fundamental problems of its ‘business model’, which have little to do with the existence, or otherwise, of ground rents.
Ask why specialised retirement provision is so much more popular in other countries – eg New Zealand, Australia & the USA – than in the UK.
(Maybe current provision here is not what people want? Coupled with word now getting around about the serious pitfalls of McCarthy-Stone-type developments.)
Build creatively-designed properties (not crammed-in rabbit-hutches).
And delight the customers so much that the sons and daughters of the current incumbents are queuing up to put their names down as soon as they are old enough.
If the experience of my family is anything to go by, the very last place we will be going in our latter lives will be anything built by the McCarthy Stone stable. Savagely-falling resale values, coupled with all the obscure layers of profit … insurance ripoffs, commissions, and – yes – ground rents … all conspire to ensure we will never be their customers again.
Presumably John McCarthy “Built his Billion” on the backs of the trusting elderly. We felt conned by him, but it won’t happen again. And bleating that McCarthy-Stone-Churchill will build less retirement developments if denied ground rent is nothing short of shameless. If true, the McCarthys will not be missed in this market.
A change of name a la Peverel?
I am surprised that neither Keith Edgar nor Janet Entwistle have had a recall.
They are the experts in total reorganisation.
Let it not be forgotten Paul Lester was a director/CEO of Knight Square ,parent company of Peverel/Firstport and the loss making/price fixing Cirrus/Appello?
Just a thought? Firstport are said to be up for sale? By selling the leaseholds on 277 house managers flats and having £9.6m of shares cancelled, they have all but wiped out their crippling debts. If they lose their ground rent income, McCarthy & Stone will have to find new ways of generating revenue. One productive way of driving revenues must be property management.
Paul Lester leaving Firstport and going to McCarthy & Stone.
Could this just be the beginnings of a plan for McCarthy & Stone to merge their property management division with the ailing Firstport?
A very well written article, thank you.
Other traps for unwary retirees continue, and these are annoying clutter in the market when you’re looking for an inexpensive home for a disabled younger relative. Rightmove’s website is full of caravan park homes misleadingly advertised under the ‘sales’ section. A former work colleague of mine ran into financial trouble after buying one of these and selling his freehold house. The rents and service charges go up, and for some reason he and others had not expected to pay council tax on a ‘holiday home’. (You DO have to pay if you don’t live somewhere else most of the time).
Also appearing on Rightmove now (as ‘sales’) are ‘Homewise’ leases for the over 60s only, e.g. at
https://www.rightmove.co.uk/property-for-sale/property-73267670.html. It’s not for me to judge that such deals are innately bad, but they certainly clutter up the market with misleadingly-priced properties.
Similar deals have been available in France for some years, but at least there the BUYER becomes the investor, getting the whole property when its elderly current owner-occupier passes away.
Could anyone from McCarthy & Stone care to venture an explanation as to how it came to be that Peverel/Firstport came to be granted leaseholds on residential house manager’s flats? And for that matter would anyone from McCarthy & Stone care to reveal if those leaseholds were “gifted” or paid for?
The entire sector of retirement is riggged. At no time have i heard mention about Elder Abuse – Financial Abuse. Probably the biggest reason being is that those parties will be dead (age related), with no-one to fight on. How many have thought to complain to the Police or say even the Care Quality Commission? C’mon here start thinking the Fraud angle.
Hello Michael, in response to your question – we live in a Churchill development and the ground rent is set within the lease, to rise on a 7 yearly basis.