Labour MP Justin Madders has demanded a ban on the building of leasehold houses where there is no justification for them.
Leasehold houses have proliferated as housebuilders exploit the housing crisis to make extra revenues by selling off the freeholds, often to shady investors based overseas who hide behind nominee directors.
Worse, some housebuilders – notably Taylor Wimpey – have built-in revenue streams by doubling the ground rent every ten years.
This embeds value in the freehold, guaranteeing a fast and escalating return, which along with all the other income streams – consents for building works, subletting, development potential – creates a valuable investment.
Freeholds that appear to have been offered to some leasehold house owners for £2,500 now cost £35,000 to purchase from the investor that bought them.
Mr Madders spoke at the All Party Parliamentary Group last week about the mayhem caused in his constituency by these practices.
Both Taylor Wimpey and Bellway Homes have been referenced, but the MP now turns his attention to Redrow, which is building 2,000 homes locally at Ledsham.
“Why on earth would Redrow think that selling large detached family homes as leasehold properties is appropriate?
“There is no good reason for them to do this and they seem to imply they will be selling the freeholds on in due course.
“We know from other developments this can result in terrible complications for homeowners.
“Deals like this need to banned.”
In correspondence to Mr Madders, Redrow said that it “does not include exhorbitant ground rent review clauses in its leases”.
Redrow’s founder Steve Morgan still controls the company and is a figure of stature in the house building sector akin to Tony Pidgley, of Berkeley, the high-end London and South East developer.
It provided the following statement to LKP:
Redrow is a responsible company and does not condone ground rent increases which are well above the prevailing market rate, or unreasonable additional charges.Redrow completed over 4,700 private and social homes in the last financial year, and sells the majority of its houses as freehold. There are parts of the country in which leasehold sales are common practice. In these areas – in practice a small proportion of our total house sales – Redrow sells leasehold. The process is made clear to buyers and their advisers in the run up to and at the point of sale.
The third party acquirers of the freehold are bound by the ground rent review clauses in our leases, which are standard: they are generally reviewed every ten years in line with RPI. We are not aware of any acquirers of reversionary interests levying unreasonable charges in addition to ground rents and we would not condone this.
Although Redrow does not sell reversionary interests directly to its customers, they have a right to acquire them after two years at prevailing market rates. Customers are protected by the Leasehold Reform legislation, which makes provision for the price to be determined by the First tier Tribunal (Property Chamber) in the event it cannot be agreed by negotiation.
Redrow welcomes the All-Party Parliamentary Group’s review and looks forward to its recommendations.
Related posts:
Justin Madders MP tells Chester Chronicle leasehold is ‘the PPI of housing sector’
If government co-operated we could fix the leasehold scandal, says Labour MP Justin Madders
Justin ‘Madders than hell’ about Taylor Wimpey / Bellway / Redrow ground rent scams in leasehold houses
Englishman’s home isn’t a castle: it’s a revenue stream for an offshore company thanks to national housebuilders, Justin Madders tells the Commons
Gleeson CEO Jolyon Harrison responds over ‘fleasehold’ row and asks Justin Madders for an apology
Sunday Telegraph says ‘New homes, yes, but not leasehold’
Can any developer selling houses on a leasehold basis show that there is any benefit for the leaseholder?
Redrow’s statement is utter tosh.
The only reason to make their properties leasehold is so they make money at the expense of the leaseholders not because in some parts of the country ‘it is common practice’. They sell the freeholds of these properties pure and simply for their personal profit and the only reason professional freeholders buy them is that the terms of the lease and ground rent will make them profit.
They hope the leaseholders never work this out and be bad mannered enough to give them negative PR about their practises.
They also claim that “The process is made clear to buyers and their advisers in the run up to and at the point of sale’ really? What proof exists that this happens? How do their advisors explain the complex leasehold system and the future financial implications of GR linked to RPI? Can we see some literature to back this up?
Who trains your sales advisors on this complex system to enable them to leasehold ownership clear? Do they have a full understanding of the 67 Act and the rights of freehold purchase for houses? Do they explain the various highly complex valuation methods under the 67 Act to purchase the freehold? I doubt it very much.
While ground rents doubling every 10 years linked to RPI are not as onerous as some GR reviews we have seen, it’s still not a good thing. This rising ground rent is profit for the professionals who bought the freehold it is also used in the future as part of the calculation the leaseholders will have to pay to extend the lease or purchase the freehold a double whammy for the freeholder!
Remember this cash flow from the leaseholder to the new freeholder is all needless if they sold the houses as freehold.
Ground rent is not the only revenue stream for the new freeholder though, there can be huge charges for building insurance if the lease stipulates it and permission and licences too. I was talking to the leaseholder of a house who was being asked to pay the freeholder £14,000 for permission to build a conservatory in his own garden. Subletting permissions and permission to sell can also rake in many thousands for freeholders.
The press release says “We are not aware of any …. unreasonable charges in addition to ground rents and we would not condone this’ ???? Is that not the same as saying there has been no outcry yet? After all they created the terms of the new leases so how do they not know the details on the properties they are selling? Is it because the terms of their leases are too complex for anyone but a lawyer to understand? Don’t they have a policy of not including onerous clauses so they are able to say categorically that there are no onerous clauses in the leases? Odd if you say you are informing your clients to make leasehold ownership ‘clear’ but you can’t be more confident that your lease don’t contain these clauses in your own press release.
Finally, in full on ‘freeholder speak’ they glibly say ‘Customers are protected by the Leasehold Reform legislation’. The legislation does little to protect leaseholders but favours freeholders. Legislation is complex and would require leaseholders to attend tribunal with professionals representation them costing them many thousands of pounds a day to ‘be protected’ but they could still lose
All of this needless if they hadn’t sold the houses as leasehold for their profit and throwing the leaseholders into leasehold nightmares.
Top post Louie.
It’s about time someone shined a light on Redrow, their entire Northwest portfolio of houses are offered as leasehold, we visited many sites and not once, was the fact the houses were leasehold offered voluntarily. When we enquired we told the 999 year leases were ‘practically’ freehold.
The sad thing is, in the north west this has been going on for many years not just by Redrow. Looking at the stories on the web about buyers (often first time buyers) who didn’t do the required financial due diligence being caught up with scandalous charges.
Ever increasing ground rents, unpredictable service charges, agreement charges, £2,500 for the pleasure of building a conservatory on your own home. £100-£200 for administration letters to support re-mortgage applications, the charges are endless.
The local councils have to ensure private roads / verges on the new build estates, which are used as justification for the service charges are banned and in future they are adopted. This is what we pay our council tax for (over 3k this year).
Some of the these Redrow houses are going for 1/2 million pounds, surely the purchasers are intelligent, capable people. How are these people not aware of the financial implications of their decision? I will look at 2-3 reviews/articles before I buy a toaster, never-mind a house..
The worm is turning, too many honest hard-working people have been duped, let hope the required legislation is just around the corner.
Well said, Louie. With 49 MPs signed up to the All Party Parliamentary Group the recognition of this evil is growing. I wonder if nothing can be done about this under unfair contract or consumer protection legislation? Presumably MPs have considered this.
I’ve previously advocated buying the freehold of some leasehold properties of MPs in London and then subjecting them to the kinds of abuses we know are rife in this sector — and I remain willing to contribute to any such initiative. I think we’d see reform FAST if that happened.
Paul, you are correct. The UCTA is weak in it’s protection of leaseholders on unfair terms but the Consumer protection Act is much stronger on contracts entered into after October 2015 and a recent case in the Upper Tribunal confirms leases do fall under its jurisdiction so everyone should be looking to take legal action on these terms if they find they have been stitched up by their lease.
It appears that all of these Builders/Developers have the same excuse when it comes to Leasehold. In fact there are many other similarities.
1 The Sales Pitch
Redrow Homes. Find your dream Redrow home today.
Persimmons. Find the perfect Persimmon home for you
Taylor Wimpey. Looking for your dream home. Can’t get on the ladder, we can
help
2 Mention of Leasehold sales. No mention on any of their websites
3 The Excuses. All the same. Leasehold common in that area of the country
All the purchasers are fully informed
The ground rent calculations are fair
Of course the truth is as Louie says, it is solely down to making as much profit as possible within the rules allowed, and hope for the sake of their PR it never gets any publicity.
Let’s hope now that they have all been fully exposed, they take the necessary action. That is to stop this practise and to compensate any major losses suffered by their so called “valued customers”.
These are major companies and there are some serious reputations at stake.
Taylor Wimpey, Redrow and Bellway have all received the NHBC Seal of Excellence Award in 2016 so they must be doing something right.
NHBC, just another club for the “boys”.so no change there. I might nominate myself for an award one day.
Although only a short interview it was great so see Sebastian O’Kelly from LKP on the 7pm BBC1 “The One Show” talking about Leasehold problems tonight.
TW and others are no better than the likes of Firstport these days. Greed greed greed.
One of the presenters on the One Show, Matt Baker, invited people to write in to them if they would like to report problems/experiences with leasehold.
If you do, suggest keep it brief, simple, and no more than one page, as I am sure he could hopefully be inundated
No there is no justification for leasehold houses (or flats even) No matter how much they are regulated, the freeholder ‘investors” will find ways to squeeze profit, out at our expense. This is simply not fair because is not a normal business transaction. The average home owner is simply not geared up to face the army of professional lawyers, managing agents and the rest of the entourage that comes with the job of the freeholder.
Freeholds are a finite resource and ultimately need to belong to the people who live in them, otherwise we are creating a serf class.
I used to think that leasehold flats were justified because well kept leasehold buildings, especially the older, listed ones, create uniformity and are attractive to look at. However this is not always the case and cases of dilapidation and extortionate service charges are plentiful.
Something drastic need to be done.
I notice on the ARMA website they are rejoicing in the success of their Annual Conference and they have set “A Vision for the Future”
I don’t know how Campaign against retirement leasehold exploitation/LKP view it, but I feel that ARMA have been saying exactly the same thing for years and have made very little difference.
Granted they have set up ARMA Q and a Regulatory Board.
From what I gather from their news items and Twitter account Q seems to be a club for the “Boys” and the Regulatory Board has already shown it has no teeth.
How about ARMA showing real intent by joining Campaign against retirement leasehold exploitationLKP in challenging the sale of new leasehold houses, ridiculous ground rents, the enormous cost of extending leases, the bullying by debt collectors (some of whom they promote), and actually get their Regulatory Board to challenge those who break the rules.
This is the adverse impression I get, please inform me if I am wrong.
I would also question if it is actually legal, for purchasers who qualify, for the governments “Help To Buy scheme” for the scheme to be used for purchase of a leasehold property.
After all the purchaser is not BUYING a property, just a glorified rent book for a fixed term.
I cannot find anything on government websites that talk about the scheme giving any reference to leasehold
Yes, it’s a government scheme but it’s the taxpayers money, my money,
Well thought out Taylor Wimpey, Persimmons, Redrow, lets build lots of houses that attract first time buyers, the ones with little money and ignorant of what leasehold really is – yes you really did know what you were doing gentlemen – bonuses all round for senior management at Christmas then
I have had confirmation from Help to Buy South, a government agency, that it is possible to buy leasehold properties under the help to buy equity loan scheme.
Well yes, we know it is possible, as regrettably it has happened far too much, but is it 100% legal. I believe the right legal team could challenge and win.
If the government knew what the terms of the leases are would they allow HTB scheme to be used.
As raised by “Ollie”, somewhere on Campaign against retirement leasehold exploitation or LKP sometime ago, would the council of mortgage lenders be prepared to allow mortgages on these leasehold properties if they were made aware of the disgraceful terms of the leases,
Successive weeks with full pages in the Guardian devoted to leasehold abuses.
A growing APPG.
The One Show yesterday.
And now have just heard the issue of new-build leasehold houses covered on Radio 4’s consumer programme You & Yours.
Superb coverage – and a big Thank You to Sebastian for all the exposure.
Surely now things will start to move!
I understand that Transport For London are releasing land to build homes on a leasehold basis, and are planning to use profits generated from the leaseholders to invest in transport infrastructure.
I would ask the APPG & LKP should look at Redrow leases for flats because there have been
complaints their ground rent doubles every 20 years .
https://www.property118.com/ground-rent-increases-big-risk/65018/comment-page-3/
Correction : : Redrow’s ground rent doubles up every 10 years
CountrySide developments here in the north-west sold their free-hold to a dodgy person and we are battling to get Right-to – Manage to stop this escalating Service chargers. The managing agent is the new free-holder and he also has a letting company on the same premises – this guy has bought an apartment in our same block were his both
business are run from. The lease is full of jargon and we have massive water leakes coming into our underground car parks – the NHBC claims it’s not structural so they declined to help I’m annoyed I fell into the lease trap.
John, you should name your ‘Managing Agent / Freeholder’. Maybe some subscribers will be having the same problems with the same individual. Strength in numbers!!Do not put up with it.