An investor who bought a Taylor Wimpey re-sale flat in London with doubling ground rent – and paid the Vincent Tchenguiz organisation £5,000 to vary the lease to rise with RPI – is to be included in the Taylor Wimpey settlement agreed with the Competition and Markets Authority.
Taylor Wimpey’s decision is an about-turn for the company that had been telling owners of re-sale properties with the toxic lease terms it created that there were on their own.
The reverse ferret by Taylor Wimpey came about after one of the buyers contacted the Leasehold Knowledge Partnership, which suggested a meeting between the company and the MP co-chairs of the APPG on leasehold and commonhold reform.
Sir Peter Bottomley MP, APPG co-chair, has indicated that the meeting between Taylor Wimpey and the APPG should nonetheless still go ahead “before the next stage of parliamentary action”. Justin Madders MP, also co-chair, echoed this in order to establish “all the different categories and what TW’s offer covers”.
A neighbour in the same block, also a buy-to-let investor who had paid £5,000 to Tchenguiz’s freehold owner company Theowald Limited to vary the lease to RPI, was given the brush-off by Taylor Wimpey:
Taylor Wimpey has reached agreement with the Competition and Markets Authority (CMA) following their investigation into historic, ten-year doubling ground rent clauses, and the investigation is now closed. You can view our announcement here: https://www.taylorwimpey.co.uk/corporate/investors/results-and-reports
The voluntary undertakings we have announced build on the company’s Ground Rent Review Assistance Scheme (GRRAS scheme) and mean that all leaseholders of Taylor Wimpey-owned ten-year doubling ground rent leases, or those that have already gone through our GRRAS scheme and converted their Taylor Wimpey-owned lease to an RPI-based structure, will revert to a fixed ground rent.
Taylor Wimpey is making a financial offer, as agreed with the CMA, to third party freeholders of leases that Taylor Wimpey no longer owns, to enable their leaseholders to do the same. We believe this is a positive outcome for our customers and leaseholders …
The offer to 3rd party freeholders is in relation to those customers who would be eligible for the Ground Rent Review Assistance scheme. BOLD As a second/subsequent owner of a property with a 10 year doubling ground rent, you would not qualify for assistance under the Ground Rent Review Assistance scheme. Therefore, any further variation to your lease would be at your freeholder/Landlord’s discretion, and we would therefore recommend that you contact your Landlord directly, to discuss.
Yesterday, however, Taylor Wimpey changed its mind, writing to the leaseholders:
Please accept my apologies, prior to seeing your latest email. I have just sent you a further communication explaining that the content of my original response to you was incorrect. The offer Taylor Wimpey is making to third party freeholders, does take into account both original and subsequent owners.
Of course, the Tchenguiz freehold owning company now has to accept the Taylor Wimpey offer for this finally to be resolved.
LKP has sent the relevant correspondence in this case to Simon Jones, who has headed the CMA investigation into leasehold mis-selling and rip-off lease terms.
LKP has long criticised Taylor Wimpey for failing to sort out the toxic leases it dumped on its own customers and introduced to the property market, where they would remain a potential source of grief for years.
In 2017 Taylor Wimpey set aside GBP130 million to address the issue, but could not resist setting the ground rents to rise with RPI.
Worse, the onus was on affected leaseholders contacting Taylor Wimpey to apply for relief.
The CMA says that around 5,400 leaseholders did so, but Taylor Wimpey sold ten-year doubling ground rents to 10,500 buyers.
Until the involvement of the CMA, Taylor Wimpey sort to game the ground rent issue to its own advantage and make only tokenistic efforts at redress.
Here was an example, giving evidence to MPs of the Communities Select Committee chaired by Clive Betts:
Related posts:
Pete Redfern tells LKP how Taylor Wimpey will sort the ground rent scandal
CMA forces Taylor Wimpey to sort out rip-off ten-year doubling ground rents
I had to spend £14,000 to change double ground rent to RPI at Ausden Place. But will I get compo from Taylor Wimpey?
Taylor Wimpey ground rent “assistance” review -update
Taylor Wimpey rejects responsibility to resale buyers facing doubling ground rents
CMA forces Taylor Wimpey to sort out rip-off ten-year doubling ground rents
So if the original grantee sold the flat cheaply because of the 10 year doubling ground they get nothing – yet the buyer who factors in the ground rent into his offer when buying the flat second hand now stands to make a significant gain
What should happen I would have thought is that in those circumstances is the new buyer continues what he factored into his offer – ie the 10 year doubling ground rent and the monies Taylor Wimpey are paying to the buyer of the freehold to vary the rent should go to the vendor who lost out.
There was a buying consortium who bought flats with 10 year doubling ground rents at prices that fully reflected the burden that the ground rent imposed on the property- is it equitable that these buyers gain from Taylor Wimpey’s policy ?
Stephen you say…
“So if the original grantee sold the flat cheaply because of the 10 year doubling ground they get nothing – yet the buyer who factors in the ground rent into his offer when buying the flat second hand now stands to make a significant gain”
The facts however are obscured, no-one knows the deal as to why ground rents were offered in the first place, given the inglorious history of the building/freeholding/management companies I don’t think it was a charitable event.
Then there is no mention of odious onerous terms, and no mention of the fact that the properties will eventually be un-sellable due to the escalating ground rents, where on earth are these people educated! who make up these terms in order to make money with no responsibility for any problems that the leaseholder may encounter with the property.
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As far as I can see this type of tenure will only be taken on by the gullible who just have no idea what they are letting themselfs in for and is in my opinion a form of slavery.
If the seller now finds that he has made a bad decision he is in a position that innumerable leaseholders find themselfs in, ie wishing they had never entered into a leasehold scheme, so if you ask me I would have to say to the seller ‘you haven’t done your homework’ even though you are in that particular business, you obviously don’t know your job or take into account the history of where this leasehold scam is going to end up…!
” Is it equitable that these buyers gain from this policy ?”
….the answer is YES, because it is a form of natural justice where the victims of leasehold have won over those who are only offering leasehold in order to extract as much money from their victims as they can get…and for no other purpose whatsoever. !
If you can’t see that this leasehold game has had its day then I suggest you don’t try to bolster it up, you may come to regret it!
If a buyer buys a property second hand which has a 10 year doubling ground rent and in making his offer to buy takes into account the burden that rent imposed on the property why should Taylor Wimpeys scheme benefit that purchaser. A ground rent of £350 per annum doubling every 10 years for the first six anniversaries would cost some £48000 to be lowered to nil – if that purchaser gets £48000 off the normal asking price he has not been troubled by that ground rent clause
The party that has been effected is the original lessee who was not advised of the burden of the rent – should that original lessee not be the recipient of any compensation as he has taken £48000 less for his property ?
This illustrates my constant point that the. Financial burden of the rent needs to be disclosed when the lease is taken on – the Net Present Value of the rent would assist in making the correct offer
In my example above that purchaser is not troubled by the rent as some £48,000 would have been taken off the value of the property – all that purchaser needs to know is what the Net Present Value of the rent is in order to make the correct offer
Thanks for the comments posted after my own in the last LKP Update, this latest information for leaseholders, adding to the curbing of the insatiable greed of freeholders intent upon exploiting those who simply need a secure and affordable roof over their heads.
In a sense, I`m an intruder, fighting the similar exploitative activities of rogue operators in the residential Park Homes market that is mainly for the semi and retired, most of whom downsized to release equity to support their pensions, very many buying into their aspirations and then falling into the hands of the unscrupulous. So, you are not alone and have the hidden support of all right thinking people.
Park Homes Policy Forum
Why don’t they force Barratt to do the same? Any idea? Who can chase it?
It was never the intention for Ground Rent to be employed as a tool for money grubbing purposes. Or as a vehicle to make money in any circumstance. Since the unscrupulous wing of an unregulated industry saw the opportunity to use it to produce unearned income, hapless and countless leaseholders have become victims of this nefarious practice.
Thankfully, following a comprehensive examination by the Law Commission/CMA and continued representations made by LKP/Sir Peter Bottomley et al, the days of Ground Rent in future residential developments are over.
And it seems in Michael Gove we have an “active” Housing Minister.
Of greater import, however, is the status of the many hundreds of thousands of existing leaseholders, who are promised “easier and cheaper” lease extensions in the future. As well as Commonhold on reasonable terms tba.
However, there is one area that requires remedying forthwith.
And that is the practice of certain freeholding companies offering “Informal” lease extensions to existing leaseholders. For this purpose, a Deed of Variation is drawn up to include a new multiplying Ground Rent (whether doubling or based on RPI). This unscrupulous practice must be stamped out immediately.
As we have been waiting since the Law Commission first commenced its consultation process in 2017, I trust the interests of existing leaseholders will now be finally addressed and legislation enacted to include lease extension/commonhold terms at the easier and cheaper cost promised by this Government.
And as the Law Commission has stated, at a cost that will make breach of right of first refusal redundant.
Alec states
“And that is the practice of certain freeholding companies offering “Informal” lease extensions to existing leaseholders. For this purpose, a Deed of Variation is drawn up to include a new multiplying Ground Rent (whether doubling or based on RPI). This unscrupulous practice must be stamped out immediately ”
There would be no problem with informal lease extensions, PROVIDED the value of the new ground rent terms is calculated and shown next to the premium sought. In that way the lessee can make an informed choice as to whether the terms being offered are reasonable
Consider a lessee with say a short lease and is advised by their professional advisor that to extend under the 1993 Act faced with say a premium of £18,000 and a ground rent of a peppercorn. If the freeholder offered a new 125 year lease with a ground rent of £200 per annum linked to the RPI every 10 years for a premium of say £11,000. With the NPV of that rent being around £7,000 then the lessee should be indifferent between the two proposals. However to form that conclusion the lessee needs to be made aware of the NPV of that ground rent stream.
Therefore, there should be an obligation on all new informal lease extensions for the NPV of the ground rent being proposed to be shown. The discount rate used to value that stream of future income to be set be the government from time to time. In that way the lessee can make an informed choice.
The problem with the 10 years doublers was that the financial burden it placed on the property was not quantified and therefore the lessee was not aware of the likely cost to remove it. If the NPV of the rent had been disclosed PRIOR to the lessee taking on the lease then the problem would not have arisen. It is a simple requirement which if implemented could have saved so much anguish.
If a subsequent purchaser knowing of the problems of a 10-year doubling ground rent factors that into their offer then that lessee is not disadvantaged by such a ground rent clause, and this is why in those circumstances I don’t feel that Taylor Wimpey need to come to his rescue
To get rid of all this mumbo jumbo…. ABOLISH LEASEHOLD.
It’s not quite as simple as that – agreements were negotiated with the lessee and the freeholder being professionally represented and therefore in a high functioning society such as this compensation has to be paid to the recipient of the ground rent and this quite rightly has to be discussed and valued
As appealing as it is to use capital letters to demand change the greatest change will come about if there is a meaningful debate about the merits of both sides views and you really need to articulate your views
Stephen, I am in little doubt you know well that when the unscrupulous branch of this unregulated industry responds to an unsuspecting leaseholder enquiry on lease extension, it does so with an “informal” offer to include a Deed of Variation introducing a multiplying ground rent clause. This comes with the added proposal the leaseholder utilise the services of the freeholder nominated solicitor (offered at a discount to suit!)
There are no “informed choices” here and never have been. The luring of unsuspecting leaseholders up blind alleys, and away from an existing legal requirement to reduce GR to zero, is precisely what an “informal” lease extension is.
I will not mince words here: I am of the view this is fraud. And I am in no doubt that the little matter of lawyers acting for freeholders in this nefarious business will, in due course, be called out.
If you took time to read my post carefully you would appreciate that my proposal that the Net Present Value being disclosed of the proposed ground rent stream would ensure that any pernicious ground rent terms would be exposed as of course the net present value calculation of a 10 year doubling ground would be so large as to set off alarm bells
If a lessee enters into a lease having been advised as to what the ground rent terms are then it is wholly reasonable to expect it to be paid – trying to row back on it arguing that it was all written in legal speak or there was no alternative but to sign up are weak pathetic arguments and running such arguments undermines the campaign to address far more serious issues
Ground rent is an integral part of the overall consideration the developer seeks on sale and it is crucial in our high functioning society that the value of that burden of paying a ground rent into the future be understood PRIOR to the lessee entering into terms of the lease
Stephen, I have read many of your comments and sometimes agreed but on this occasion to say, Ground Rent is an integral part of the overall consideration developer seeks on sale and it is crucial in our high functioning society that the value of that burden of paying a ground rent into the future be understood PRIOR to the lessee entering into terms of the lease.
The intention of Ground Rent, in the beginning, as I believe, was a contract to pay a Peppar Corn amount annually, and this allowed the Freeholder/Landlord to visit and record what was found in respect of a lease?
There are large swaths of leasehold houses in the north built around the end of the nineteenth century, early twentieth century when the ground rent is often a £1.50 per annum
Today we may regard £1 per annum as a token sum, but at that time the average wage of a bricklayer/carpenter was around £1.75 to £2.00 per week. The ground rent of £1.50 was far from a token sum
I was looking at an auction catalogue from 1926 where the ground rent on a substantial house in south London was £5 per annum yet the property was let for £70 per annum . Therefore, the ground rent was some 7% of what the property was let for, again most certainly not a token sum .
Ground rents became quite small compared to earnings or what the property could be let for in the early 1970s when inflation eroded the value of these fixed sums.
To compensate for this from about 1970 it was common to see ground rents doubling every 25/33 years, but was a very crude repairing mechanism for the ground rent and only in more recent years to avoid the problems that inflation can cause the rent is now often linked to the RPI so it can be easily calculated by the lessee and the freeholder.
In commercial properties often a premium is sought along with an annual rent and sometimes the premium can be very substantial with a low rent, or it can be a very high rent but with a smaller premium.
So long as the impact of the rent is understood, PRIOR to entering into the lease, then there is no risk of being caught out by a pernicious ground rent. To appreciate what that impact is the Net Present Value of the rent needs to be disclosed and calculated using a set discount rate set by the government from time to time
To compare credit terms, reference is made of the Annual Percentage Rate – APR and the broad principles are the same with the concept of the NPV of the rent
In the new bill, the existing ground rent terms can remain the same for the remaining years of the current lease term and I believe in order for lessees to know whether an informal lease extension is worthwhile the NPV of the current rent for the remaining term needs to be calculated. It would be a simple amendment to the Bill
Stephen, I purchased a Leasehold House in 1983 with an annual Ground Rent of £35.00
I was able to purchase the Freehold for 10 times the GR £350 best deal I ever did.
In 1983 the base rate was around 9% to 11% and therefore to capitalize a rent of £35 it would be expected to be of the order of £350
Today as we know the base rate is 0.25% and this collapse in interest rates has caused the capitalization of ground rents to rise. However, it is also responsible for house price inflation and the soaring value of defined pension benefits .