The Sunday Times reveals leaseholders who are still caught out by aggressive ground rents traps dreamed up by plc housebuilders and the investment asset – the freehold – sold to murky offshore private equity punters
Thanks to the National Leasehold Campaign for raising this issue in the national press
The ongoing cheating of ground rents linked to RPI (Retail Price Inflation) was revealed in The Sunday Times yesterday and revealed as more onerous than ten-year doublers in periods of high inflation, like now with inflation at 12%.
This is a point worth remembering as Taylor Wimpey – imitated by other developers and some freeholders – offered to vary leases with ten and 15-year doubling ground rents to rise with inflation instead.
Ten-year doubling ground rent equates to 7.18 per cent interest and 15-year doubling ground rent is equivalent to 4.8 per cent.
According to Taylor Wimpey, 5,400 former customers signed up to change from doubling ground rent to RPI – which for opaque reasons, now almost certainly regretted, were more acceptable to mortgage lenders.
Taylor Wimpey still persists in pretending that this sleight of hand was an improvement on their original cheating of their own customers.
Why the ground rent scandal isn’t over
Although thousands of leaseholders were recently freed from ground rent, many are still stuck with inflation-linked costs, Melissa York reports
It climbed down after pressure from the Competition and Markets Authority as part of its mis-selling investigation into leasehold homes with aggressive, wealth eroding lease terms.
Having launched its Grent Rent Riew Assistance Scheme in 2017, it had to further climb down by scrapping it 22 December 2021 and doing what the CMA said.
This is how Taylor Wimpey dressed it up in its announcement:
https://www.taylorwimpey.co.uk/get-in-touch/cma-leasehold-investigation-closure
“Building on the company’s Ground Rent Review Assistance Scheme (GRRAS scheme) – which was launched voluntarily and proactively in 2017, we have given voluntary undertakings to the CMA. The CMA acknowledges that the GRRAS scheme has helped over 5,400 customers convert their ten-year doubling ground rent leases to an industry standard RPI-based structure, at Taylor Wimpey’s cost, and addressed the concerns raised regarding mortgageability or saleability of these properties.
“The undertakings mean that Taylor Wimpey is taking the following additional steps in respect of leases that contained a ten-year doubling ground rent clause when originally issued by Taylor Wimpey.”
The Sunday Times highlights the case of Keith Hince, 71, who in 2012 bought a leasehold house in Canterbury, in Kent – the newspaper omits to say that the developer was Bellway and the freehold was scooped up by the anonymous private equity punters who invest in Will Astor’s Long Harbour Fund, with ground rent collected by HomeGround.
The property had an initial ground rent of £250 a year, which increased after eight years in line with RPI, then every six years afterwards.
Lenders won’t provide a mortgage once ground rent is more than 0.1 per cent of the value of the property, which Mr Hince’s ground rent has already exceeded.
Mr Hince’s next review was due in October 2024, but he bought his freehold last month after two years of negotiations at a cost of just over £10,000.
“A lot of people think that ground rent is giving money to a person who will invest it in the site, but it just goes straight into the pocket of a freeholder that is based in Jersey or some tax haven most of the time. The whole thing is appalling,” he says.
In September 2019 Mr Hince wrote to Jason Honeyman, CEO of Bellway, that the aggressive ground rent terms were not explained at sale “which consequently prevented us from making an informed decision”.
The service charges on the estate had also escalated.
Thousands more leaseholders freed from rising ground rents
Fifteen businesses to remove costly ground rent terms Over 3,400 leaseholders’ ground rents will now remain at the amount charged when their home was first sold CMA Chief Executive says more housing developers to be put ‘under the microscope’ as investigation continues Fifteen businesses which had bought freeholds from housing developer Countryside have now given formal commitments – known as undertakings – to the Competition and Markets Authority (CMA) to remove terms that cause ground rents to double in price.
“The businesses, which include investment firms and housing associations, will also remove terms which had originally been ground rent doubling clauses, but were converted so that ground rent increased in line with the Retail Prices Index (RPI). The CMA believes that the original doubling clauses were unfair terms and should therefore have been fully removed, not replaced with another term that increases the ground rent.”
The article also highlights the case of Quentin van Genechten, 29, a marketing executive, who bought a two-bed flat at the Royal Arsenal Riverside development in Woolwich, southeast London, from Berekeley Homes.
Ground rents are £425pa and rises in line with RPI or doubles, whichever is lower, every 21 years for the entire term of his 999-year lease. This is a worse deal than the banned doubling ground rents, which stop rising after 50 years.
Unfortunately, he paid a deposit on the property before June 30 when the Leasehold reform (Ground rent) Act became law ending new ground rents.
Report your case to the Competition and Markets Authority here. If you wish to provide information to the CMA please use one or more of the following email addresses below:
leasehold@cma.gov.uk
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
Mr Van Genechten asked Berkeley Homes whether it would reduce his ground rent to peppercorn out of “decency”, but it would not do so.
“I can’t prove it but I’m pretty sure there are flats in the same building that have a peppercorn ground rent because they were bought later.”
In fact, he could prove this by looking at the Land Registry details of any property that was sold, in entirety, after 30 June 2022.
He is worried his new flat will be harder to sell compared with flats which do not have ground rents.
Preposterously, Berkeley Homes declined to comment to The Sunday Times about this case, which is one of several that LKP is aware of.
Another case in Melissa York’s Sunday Times article concerns Sashikanth Dareddy, 37, who bought a 25 per cent share from One Housing in a three-bedroom “affordable” flat in Beckton, east London.
It was only when he “staircased” to 100 per cent ownership in 2019 that he discovered a “minimum rent” clause for £750 a year that increases in line with RPI every five years.
This is a truly disgraceful example of financial gaming of ground rents in the shared ownership market.
LKP is unaware of the housing association, or possibly commercial developer, who dreamed up this toxic lease which does the precise opposite of what shared ownership intended: punishing 100% owners for having at last achieved their dream of full home ownership.
Why is this gerrymandering of people’s homes as sneaky investment assets tolerated?
Related posts:
CMA forces Taylor Wimpey to sort out rip-off ten-year doubling ground rents
Taylor Wimpey’s snake oil ground rent review scheme makes toxic leases even worse: in my case, £25m worse!
Taylor Wimpey rejects responsibility to resale buyers facing doubling ground rents
Taylor Wimpey CEO to meet MPs over ‘cancer’ of doubling ground rents (which were deterring astute buyers in 2007!)
Last year: £64.8bn leasehold properties sold. £13.7bn was new-build. Leasehold house numbers double. Developers make £300-500 million a year from ground rent sales
Pier / Regis: ‘Pay up £120 for subletting!’ But it says £50 in the lease. ‘Tribunal. Legal costs. Forfeiture … er, alright, we will take £50. Same dance next year? …’
Rents linked to the RPI are only a problem if average earnings fail to keep pace with the RPI.
The following data is available online
For average earnings, I shall use table EARN04 published by the Office of National Statistics
https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/grossweeklyearningsoffulltimeemployeesearn04
The mean average wage for Jan to Mar 1997 stood at £329 – The RPI for Feb 1997 was 155.0
The mean average wage for April 2022 to June 2022 stood at £727 – The RPI for May 2022 was 337.1
Over that 25-Year period, average earnings rose by 121% and the RPI by 117%
Therefore, if you had an RPI ground rent in 1997 it would as a proportion of average income be about the same today. Hardly the stuff of nightmares.
It is a sensible way of keeping the purchasing power of the income constant and is far better than doubling every 20/25 or 33 years, which are of course mere guesses as to inflation.
In the article, Mr Van Genechten asked Berkeley Homes if out of decency they would reduce his ground rent to a peppercorn and they declined. I can see Berkeley’s Home point
A deal is put on the table where the developer seeks a premium of £yyy, yyy and in addition a yearly rent of £ XXX linked to inflation. It is set out in the draft lease in some detail I suspect ( possibly a whole schedule in the lease will be devoted to its calculation) and considered by him and his solicitor over a period of time. The deal is then completed and then when he finds out that others negotiated terms with no ground rent that this is seen as underhand by Berkeley and out of decency they should cancel his ground rent. All of this was done at a time when ground rents were in the news, so purchasers could be expected to be more aware of what a ground rent is and think before they purchase whether the financial burden that a ground rent places on the property is adequately reflected in the price paid.
I bought a new car the other month and now notice that the manufacture is offering a longer warranty should I accuse the manufacturer of underhand practice and seek to have a longer warranty. No ! I have to accept that is part of the commercial world we live in, sometime I will strike good deals and sometimes I will get it wrong
In the article it states “This is the second time Van Genechten has been burnt by ground rents”
I find such melodrama in the words “burnt” . The ground rent is £425. The flats are typically around £800k to £1m. To afford such a property, an income at the very least of £175k is going to be needed.
On such an income £425 is an inconvenience at worst, but not “burnt”
As this gentleman is a “marketing executive” I am not sure is marketing himself too well, running to the newspapers to have it splashed across the press that you have made this “mistake” twice and being “burnt”
Again and again I make the point that the root of the problem here is the failure to disclose the financial burden the ground rent places on the property so that purchasers can consider it its implications BEFORE buying to ensure it is reflected in the price paid. Whatever the size of the ground rent or its review pattern, it would not matter if the NPV of the rent was calculated and shown next to the premium being sought.
If that had happened, perhaps our friend Mr Van Genechten would not be recovering in the burns unit for the second time
Crispin Blunt CONSERVATIVE MP for leafy Reigate:
“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).”
This is spot on. And look at how housebuilders knobbled the information flow with their stooge solicitors and valuers.
What Stephen is trying to argue is that the ground rents are perfectly fair (if they weren’t wrong, why have new ones been stopped?) and should be an identifiable part of the purchase price when new.
But they are not.
Sadly, developers pay no attention to this, and could not care less about the bottom-feeders later on down the line, who buy up freeholds. Smoke and mirrors calculations are deployed in enfranchisement to argue up the value of the landlord’s interest – unfortunately, with some success in our courts – but again many dispute the fairness and honesty of this approach, hence the Law Commission proposals for reform.
The leasehold monetisers’ own greed killed the golden goose, and good riddance to the lot of them.
A ground rent is onerous if the financial impact of such a rent is not appreciated by the purchaser.
Take a flat worth, £300k with a peppercorn ground rent. If it was marketed with a ground rent of £10,000 a year rising in line with the RPI and offered for £50,000 that rent is not onerous. If it is marketed at £250,000 it would be. This is why I believe the NPV of the rent should be shown next to the premium to avoid someone taking on a lease without considering the financial impact of the rent
Stephen I can almost agree on this point. The problem both the Law Commission, the Department and the CMA have repeatedly shown that consumers and suppliers do not make economically rational decisions partly because suppliers seek to conceal the impact of the ground rent. In the retirement sector they fully understand people often need to make a quick decisions following some major event in their life. Too often consumers can be persuaded they only need to worry about how much the cost of the ground rent is over their expected period of ownership. IF people had been allowed to make economical decisions and were not subject to the developers controlling supply we would never have had the instance of a developer selling leasehold houses at the start of a year and then reverting to selling the same size homes on the same site at the same price (actually a bit lower) as freehold at the end of the financial year to help make sales targets.
According to the article a 5 yr RPI review from Sept 2018 would be £485.90 – almost doubling!
1. This would assume the journo knows future RPI (impossible) as the review period runs to this time next year
2. The correct to date figure is more like £300, so £50 increase (c20%) over four years. This is using the ONS which is the official source
It’s hardly rocket science yet nobody seems to have spotted this obvious error (massive exaggeration?)
Ronnie whether a jurno or indeed a surveyero have a better idea of where things are going with inflation is open to debate. Firstly RPI is no longer accepted as a robust statistical system and the government should have dumped it years ago. Secondly it’s not rocket science in understanding all the predictors suggest RPI and CPI will peak at some very high numbers by the end of the year making the £485.90 figure potentially look conservative. It’s only four years ago the stats suggested 2023 inflation would be running at 3% but that was before the issues now driving up prices. I would say the report in not a massive exaggeration just that things have changed. Should the pound fall into the toilet things could get even worse on the other hand should the ERG brexit uplands appear then queues in the NHS will disappear and the economy will grow in a way that will surprise the OECD.
If the journalist is to be believed(!) we would need inflation of around 60% over the next 12 months. On the basis it’s fallen this month and is hovering around 10% this looks exceptionally unlikely/silly
Your follow on comments about things getting “worse” and the 60% inflation being “conservative”, as well as denying the report is exaggerated and then stating “it’s not rocket science” perhaps need some quiet reflection
Ronnie RICs – I would agree the whole subject needs some quiet reflection. The near hysteria over grounds rents has seen lease where the ground rent is say 0.2% of the value of the flat being made un mortgageable is ridiculous.
Mortgage providers have inflamed the whole matter by imposing underwriting limits where an indexed linked ground rent of say £275 per annum reviewed every 7 years is not acceptable. Yet the ground rent may be quite modest, and it is simply staggering that such a ground rent can act like a wrecking ball to the value of a flat worth say £300,000. Mortgage providers should recognize that the financial burden of such a rent is about £9,000 and provided there is sufficient equity in the property should not be a problem.
It is likely that the government proposals will enable leaseholders to rid themselves of the rent without having to extend the term, therefore with no reversion to value the calculation is relegated to a desk top valuation / a calculator using prescribed rates with very modest fees.
How many leaseholder now have ground rents that run into four figures, and if they did, they would have probably been aware of it BEFORE they purchased and being so large factored it in to the purchase – therefore bizarrely the larger the rent the less likely it is to be onerous !
Ground rent terms , in the last few years, seems to have become the lightening conductor through which all the negative feelings about leasehold is brought down to earth.
More from Crispin Blunt, CONSERVATIVE MP for Reigate:
“I urges that leasehold houses be transferred to freehold immediately, and that leasehold flats become commonhold. I advocated there should not be any ground rent as property title should be either freehold or commonhold in the future. Titles to people’s home is demonstrative of their ownership to their home that is to serve as a physical shelter and emotional safe haven for the family. Shelter and security is a fundamental need”.
This is not the late and radical – and much missed Louis Burns, this is a right wing Tory MP. Those who exploit our feudal leasehold laws, and profit from these laws, are akin to the slave traders of years gone by. They are brothers, they share the same skin, they are the very worst of humankind, they are scum.
Suggesting that freehold investors are slave traders is deeply disrespectful to those people who were subjected to slavery.
It does not move the subject forward as the stupidity of the accusation makes those who are in a position to make change switch off from listening to such drivel
Those who exploit our feudal leasehold laws, and profit from these laws, are akin to the slave traders of years gone by. They are brothers, they share the same skin, they are the very worst of humankind, they are scum.
A deadly serious question, why does my freeholder insist on half yearly payment of ground rent by cheque or postal order ONLY?
Lets examine this. Ground rent is an important source of income to freeholders, surely immediate electronic payments make sense? But there are such things as late payment penalties and forfeiture which are individually much more lucrative for freeholders. It then makes sense to make it more difficult for leaseholders to honour and pay ground rent. Cheques and postal orders are those difficulties.
Banks don’t even issue cheque books to customers nowadays unless requested to do so. I have a five year old cheque book with ten used cheques, all of them to my freeholder. I have not written a cheque to anyone else. Leasehold is a sewer.
Fact of the matter is, Ground Rents are no longer from June `22. Stephens ilk and the murky offshore world has been defeated. So his arguments are as normal, spurrious and pointless!
The Government and the Queen Elizabeth II, god bless her, consigned the feudal crap into the history bin… and so our next cause is existing ground rents (onerous just by existence), service charges and finally low cost enfranchisement; so we can send the like of the Astor`s off packing!
We took and inch and now we want the mile Stephen.
As for landlords being long term custodians;
“(RPI) is a sensible way of keeping the purchasing power of the income constant and is far better than doubling every 20/25 or 33 years, which are of course mere guesses as to inflation. ”
So those long term custodians, so expert in leasehold, choose to take on leases that double and that are just guesses at future incomes? Some expert custodians.
Filed under … Sayonara Suckers!