How a legal loophole allows British builders to transfer the ownership of flats into hands of hidden investors
LONDON – A few words in a law designed to protect homeowners appear to have been used by major housebuilders to sell off freehold rights to investors, leaving the ultimate ownership of flats in the hands of hidden investors. The Landlord and Tenant Act 1987 was introduced to protect homeowners from soaring service charges and unfair leasehold practices.
The Business Insider website reports that the right of first refusal is easily worked around by developers and gives a few examples.
The article by Thomas Colson shows how it is perfectly legal for developers to hold the freehold of a block of flats in an associated company and simply sell that vehicle on to ground rent speculators.
It cites the example Persimmon Group (No 3) Limited registered on July 14 2009, as an associated company of Persimmon. On November 19 2014 it was re-named Adriatic Land 2 and its single share ownership transferred to Adriatic Land 2 Limited.
In common with all Adriatic Land freehold owning companies the ultimate beneficial ownership is hidden behind nominee directors of the private wealth management firm Sanne Group, based in London and Guernsey.
The Adriatic Land freeholds are managed by the Long Harbour group of William Waldorf Astor, heir to the viscountcy (and half-brother-in-law of former Prime Minister David Cameron).
Mutiple homeowners have reported having the ownership of freeholds on their homes transferred to the network of Adriatic Land companies without their prior knowledge.
Mr Colson writes:
“Business Insider asked Persimmon if the associated company was registered for the purpose of selling freeholds without first offering tenants the Right of First Refusal, but it did not respond to a request for comment by the time of publication.”
The article then considered Seaton Group SPV 5, Bellway XI, and Bellway XII, all registered to Bellway, a FTSE 250-listed builder, between April 2009 and April 2013.
They were subsequently re-named Adriatic Land Group 6 (GR1), Adriatic Land 3 (GR1), and Adriatic Land Group 4 (GR1) and their ownership was subsequently transferred to Adriatic Land.
“Business Insider also asked Bellway if the associated company was registered for the purpose of selling freeholds without first offering tenants the “right of first refusal”, but it had not responded to a request for comment at the time of publication.”
Emily Fitzpatrick, a solicitor with Hart Brown solicitors (which is also quoted making leaseholder-friendly comments in the Commons Library report), tells Business Insider:
“In my experience developers and non-developer landlords who were correctly advised were certainly circumventing the obligation to offer freeholds to leaseholders in this way.”
She added that developers contracting “with a third party, often a regular ground rent investor, before any of the flats have been sold” is now the more common work-around.
This is also LKP’s experience.
“This means when they come to complete the sale of the freehold to the third party, the Act does not apply because the developers are obliged to sell the freehold under a pre-existing contract,” says Miss Fitzpatrick.
If you want to reform leasehold, this is how you could do it
In an LKP Westminster all-party round-table meeting for MPs in January 2015, Philip Rainey QC referred to the 1987 Act as “one of the most ill-drafted pieces of legislation ever inflicted on us”.
He added: “Now that we have collective enfranchisement, lease extension rights for all flats and no-fault Right to Manage, the right of first refusal is in principle redundant.”
LKP is quite surprised that the dukes of Westminster and Buccleuch commercial interests, and possibly Native Land, did not take steps to avoid right of first refusal at the prime London site Neo Bankside, where the freehold is currently on sale for £4.8 million.
Freehold sale withdrawn at Discovery Docklands East – once the residents were all set to buy
Related posts:
Families challenge Long Harbour for freeholds to Bellway leasehold houses, The Times reports
Bellway sells Baltic Avenue freehold to Adriatic Land 6 as leaseholders mobilise
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
Taylor Wimpey gets round ‘right of first refusal’ to buy freehold by selling the block BEFORE more than half flats are sold
Barking Riverside fire survivors round on secretive freeholder Adriatic Land, reports BBC R4
The creation of the National Leasehold Campaign
Question? A lease starts at the time the freeholder creates the lease which is often some considerable time before the lease is purchased.
Logically, the ground rent must be payable from the inception of the lease.
Have the developers paid the ground rent due under the terms of the lease prior to the sale of the lease?
There is probably a clause / loophole in the ‘Handbook of Illogical Spivs ‘ that states – ” The ground rent becomes payable when we find an unsuspecting hardworking purchaser to shaft- until that moment it is FREEEE for MEEEEEEE”.
Or something that….
Kim, It can’t. The lease is the lease. Only by a deed of variance can it be changed. so if a property is unsold for a year the developer would be legally obliged to pay one year’s ground rent to the freeholder (even if they are connected companies). If they have not paid the ground rent then a defective lease has been purchased. A solicitor should have checked that the ground rent has been paid prior to sale..
Ooooh good point Mr E! Can a solicitor retrospectively check to see if TW et al paid ground rent prior to the sale?
The contract for the sale of the property will state that the vendor sells a “beneficial owner” and is therefore obliged to discharge all ground rent and service charges on completion
There is nothing to fear on that point
Stephen, I am not saying leaseholders are going to be asked for unpaid ground rents or service charges. The act of sending a demand for ground rent or service charges repairs the defective leases.
That is why certain managing agents can be less than diligent in collecting unpaid service charges.before a sale is completed, as they know that provided they do not send a demand for payment to the new owner, they can eventually hold that new owner responsible for debts of the previous owner. So many people have quirked as to why they had not received a service charge payment demand only to be told “not to worry, it’s just a matter of the paperwork ” And then the managing agent delivers the hammer blow to the leaseholder.
If the lease provides for a ground rent to be paid, the question remains did the original leaseholder pay the ground rent and service charge, and if so, to whom and if not why not?
“Quirked” time for a new keyboard me thinks! Queried was the word that was meant!
The standard LPE1 form (i.e. enquiries before contract ) should tease out this information but poor conveyancing can as we know let such things through.
“Let things Through” ? What. Like a camel through the eye of a needle…, I don’t know who is paying you, Muslim expert, you … But they have wasted their moolah. You are rubbish!
true. But did you know that existing leaseholders can barely wrestle the information required for LPE1 forms from their managing agent? there is no mechanism in place to ensure this happens, take it from me that is so…
Mr E , don’t waste your valuable time with ‘ Stephen ‘. I believe he is nothing but a trolling PR PUFF. See his ‘Muslim’ refs re ground rent, SCOUNDREL!
In actual fact , I think ‘Stephen’ might actually be a dreadful woman calle A*r ^# s *+?,.who works in the biz and has adopted another persona to post on this site. She is a shocker and should be banged up in my opinion. I shall be keeping an eye on ‘Stephanie’s posts in future…….
I hold a view that is different from others
I believe that a ground rent that is clearly set out in a lease and is valued using a precribed discount rate and made to form part of the consideration payable for a leasehold property. then I do not see the objection to having a rent . An owner of a property should have the right to dispose of it on terms he wishes PROVIDED it is crystal clear what this terms are . We live in a free market economy and that is part of model.
Equally all admin charges should be clearly set out and quantified so anyone buying knows exactly what they are and can factor that into their offer
I have a background in finance and was deeply involved in the consumer credit act. Therefore you will see some of the ideas to clean up loans being reflected in what I am suggesting
If you take a different view then you need to understand my logic so you can formulate your argument in better more robust terms . We live in a democracy and we are going through a process thrown up by democracy and we need to put arguments forward based on facts, logic and an understanding of why somebody may hold a differing view .
The anger you have towards leasehold is so great you are unable to formulate a coherent argument other than be rude
Stephen, you’ve had a grand career in finance, right enough.
However, I cannot help noticing from your comments that you have something of a Nelson’s patch over any unbiased eye, assuming you have one.
So I wonder if aside from that grand career in finance you are or ever have been a leaseholder? You seem to have a keen interest in the campaign for leaseholder rights, which is why I ask.
Where you defend “we live in a free market economy” and assert “an owner of a property should have the right to dispose of it on terms he wishes as long as it is crystal clear what those terms are”, I can’t help wondering if you actually follow any of the multitude of court cases on leasehold, or for that matter the body of consumer protection law needed to clip the wings of the free market?
PPI was once a free market force, as were all those interest only mortgages to name two sold with “clear terms” hardly less subtle or unclear in their day than a highwayman pointing a pistol at one’s head saying, “Ah go on, go on, sure its a fine deal or I wouldn’t offer to take your money, now would I?” You can’t argue with a free market, after all. Just as long as the terms are clear.
As for these ‘owners’ of property… you seem unconcerned that freeholders are not actually owners (or for that matter investors in) the buildings they lord it over?
They own the freehold that’s true enough. They can sell that, which sort of proves this. They also retain a reversionary interest. But can you really, truly claim they ‘own’ the buildings or even the common parts at this stage, I mean in the ordinary sense of the term ‘own’?
If they do own the premises (and many in government argue they do for they are landlords), then presumably they can pop down the bank and borrow on the value? Or sell their building with ‘sitting tenants’ as standard landlords can do? If you own something it is yours to dispose of as you like – this appears to be your argument?
The whole basis of leasehold is a classic English law sleight of hand, all smoke and mirrors. But quite clever given the vassals pay all the costs, including the majority value of the property.
I can’t deny your argument doesn’t have the upper hand at present. As you say, it is a “free” market economy. The same one that keeps housing firmly as a market commodity rather than a basic human need.
Cave folk got by without a free market (just a bigger club than the neighbour but at least the head sore neighbour could go look for a cave of their own further away). Now even caves are owned by land owners.
The freehold industry is simply the pus on top of a rather a very large free market boil.
Sadly, even the courts have given up trying to pretend the law is unbiased.
You mention the Consu,mer Credit Act – then how is that when Lessees are in receipt of Svc Charges, for example, there has been no credit assessment carried as to ability to pay? Also how is it that Credit can be raised against the Lessee when they have no actual contract in place for the same? What often happens is that the MA sends out the demands (often no works have been carried out) including VAT (blanket coverage) including those chums who are not VAT registered so that they can pass off the Lessee as a Bad Debtor under the VAT Act. At what stage has there been any Means Testing carried out apart from the Lender offering the Mortgage? The VAT ruse is an established ruse so as to ensure the Xmas party is extra Jolly & satisfies any Commercial Mortgage criteria over the Lessees Equity, without 1st knowledge by the Lessee or their Lender.
Yeah, if you say so ‘ Stephen’ ‘Stephanie ‘ or ‘other’……
Whoever Stephen is or isn’t, progress is made when alternative views are put forward on this site.
There is much that I fundamentally disagree with Stephen on, but I for one appreciate anyone that makes a contribution.
And if perchance , Stephen is actually an industry insider plant, then we can use his views and turn them to our advantage against the industry
It is also important to acknowledge that sometimes we are capable of making mistakes. The trick is to learn from any mistakes.. Carry on Stephen!
Totally agree Mr E, ! Although, who was it said and I paraphrase – ” It is better to say nothing and allow others to think them a fool, then to voice ones opinions and prove them right”!! So I agree that Stephen should keep on posting his “suggestions “. Fill yer boots Stephen!!
The present loophole involving the sale of freehold titles to new build leasehold houses/flats before the last lease is sold must be plugged by the “over the coming months” changes to legislation promised by the Communities Secretary, Sajid Javid MP.
Whilst the law relating to “new build” premises may be avoided through the expedient outlined by Thomas Colson in Business Insider UK, it does NOT apply to existing FLATS built typically during the 1970/80/90s, where a vast CRIMINAL trade continues to exist.
THE LAW:
Under existing provisions of part 1 of the LTA 1987 (as amended by Housing Act 1996) a majority of qualifying leaseholders (long leaseholders) in residential flat premises possess the Right of First Refusal (RFR) in the event the existing Landlord wishes to sell the freehold title to the premises in which they reside.
And it is a CRIMINAL OFFENCE for a landlord to make a relevant disposal affecting premises to which part 1 of the LTA 1987 applies without first serving due notice on the qualifying leaseholders offering RFR.
IN PRACTICE:
There is major abuse of the EXISTING legislation among a relatively small group of criminally devious and unscrupulous landlords.through the sale of Ground Rent portfolios without prior knowledge of the qualifying leaseholders
This abuse relates specifically to freehold residential flats premises .constructed during the 1970/80/90s where the majority of flats are on 99 year leases with the years remaining approaching or already under 80 years. This ensures the flat owner will need to extend the lease in the immediate or very near future.
This criminal trade is a lucrative business for the devious and unscrupulous landlord purchaser as it also opens up a lucrative trade in “informal” lease extensions..
(NB: I have provided LKP with a sample copy of one such, and to describe it as an “extension” -informal or otherwise- is a more than a misnomer),
This criminal title trade along with the trade in “extensions” adds criminal insult to criminal injury..
The sale and purchase of Ground Rent portfolios of existing flat premises built typically during the 70.80/90s is a major CRIMINAL FRAUD that deprives unwitting leaseholders of the material interest in their own leasehold properties. The criminal sanctions imposed by the amendments to the Housing Act 1996 are woefully inadequate to deter the unscrupulous or to protect the interest and rights of leaseholders.
Note: Where a landlord enters into an agreement with a purchaser to transfer the land to an associated company on the basis that the transfer of the land is conditional on the purchase of the share(s), then at the time of the transfer of the land the landlord holds the share(s) as a fiduciary for the purchaser and the transfer (sale) is therefore not to an associated company.
…and thereby RFR is criminally breached.
The time is now to outlaw ALL “loopholes” and rid us of this Rachmanist menace in our midst
I trust the Law Commission and Sajid Javid . MP will “over the coming months” move to this end.
Alec, your post is crystal clear , informative and frustrating! Frustrating due to the fact it shows very clearly how these unscrupulous individuals oprerating in this murky world have committed criminal acts with impunity..It is incumbent on all leaseholders to be all over Sajid Javid like a cheap suit and email him on a daily basis over the “coming months” to ensure all “Loopholes are Outlawed”. I shall start by emailing him today and will filch several of your excellent points to include in my message! The Rachmanist era is obsolete and must remain so.
tje type of ground rents you refer to sell these days for around 100% of the enfranchisement price and there are orivate equity funds looking to buy them
The lessee is not necessarily losing out on a bargain price but they do lose out because when they come to enfranchise or seek a lease extension )to which they have a right to) they end up paying possibly £4-£5k in legal and valuation fees
If the. valuation of the property could in most cases be based on the council tax banding it is possible to have the whole exercise relegated to a number crunching exercise devoid of professional advisers. Therefore whether the lfreehold to a lessees property is sold without section 5 being served would not really matter
When premises as I have described above is unlawfully sold without a section 5 being served (and without a section 3A being thereafter issued by the illegal buyer) it does matter – it is criminal.under the amendments to the Housing Act 1996.
Moreover, they are not sold for around 100% of the enfranchisement price as Stephen would have us believe – they were/are sold for a relative peppercorn with both parties to the illegal transaction going to exceptional lengths to conceal the fact and sale beforehand.
To suggest that criminality “does not matter” is outrageous.
Meanwhile, I have also noticed from the Commons Library document reproduced by LKP that LEASE are trying to suggest that leaseholders are steered away from the First Tier Tribunal – Property. on the fictitious ground of cost.
The individuals who engage in this criminality have spent many years trying to do just that and have spent a lot of time trying to shy leaseholders away from the old LVT and latterly from the First Tier Tribunal Property.. It was/is in the Tribunal that their illegal practices have been primarily exposed- and the practitioners do not like it! So much so they now wish to close down the only real avenue open at present to leaseholders to pursue their grievances. It is in Court that the unscrupulous, aided and abetted by equally unscrupulous solicitors/counsel seek to tie the vulnerable leaseholder up in extortionate legal costs – designed to bury them!
And it now appears LEASE are joined by Stephen and others in a mischievous move to divert leasehold premises into the enfranchisement (1993 Act) route. Wow! what a FRAUD! You buy Ground Rent portfolios for a relative peppercorn and then sell to the gullible and vulnerable leaseholder for the full marriage value.
For the avoidance of doubt – the leaseholder has the right to buy the freehold on like terms to the original disposal – and there is no time requirement. The right continues to exist until such time as a valid (in this case) section 3A notice is issued to qualifying leaseholders.
A vendor acting logically would want to get the best possible price for their asset so the sale of the freehold to a third party should be a market value.
The point I am getting at is that sale of freeholds where the term remaining is 100 years or less seems to go through at around 100% of enfranchisement price and the evidence for this is an analysis of auction results – dont take my word for it, crunch the numbers from the auction results. Bear in mind to help you there is a useful calculator on the LEASE website
Unless individuals working for the company selling are behaving in a dishonest way and underselling in return for private commissions I cant see why the freehold would ordinarily be sold at less than market value particularly by a large institution who should know what the value of their assets are.
I repeat the point that if the cost on a lease extension or the purchase price of the freehold was relegated to a defined formula without the need to pay for solicitors and valuers then the significance of the Section 5 would no longer be an issue
Phillip Rainey QC who is highly regarded by LKP suggest that Section 5 are no longer necessary in view of lessee’s right to acquire the freehold, extend the lease and to form an RTM.
Totally agree with what has been written! Yes it did all start at the LVT. In particular from 1993 onwards. Legal (illegal) cartels were formed on the strength of this as borne out by one nefariuos struck-off Sol has proven 51 times over! He has been acting as a Sol on the day, referred to, inferred to and his practice (using a Co’s Hse SIC code) so as to establishe case laws so as to change Leasehold as seen today. The end game being his conniving cartels migration in to Leasehold Houses. SI1996/1022
http://www.legislation.gov.uk/uksi/1996/1022/contents/made
Solicitor to be on the record – bullseye! This is what drops Boon in the proverbial excrement.
53.—(1) Where a solicitor commences or responds to proceedings on behalf of a party to those proceedings he shall be noted on the record of the Tribunal as acting for that party.
There is no time limit for FRAUD. It would be a good idea to move away from Civil Law in to the realms of Criminal Law! s.7 Larceny Act 1916 for starters!
Dear Alec, I am not blowing smoke up your fundament but I applaud you I am ‘Investigating’ a ground rent portfolio individual who boasts on twitter how big his ‘pipeline’ fnar fnar of residential flats acquisitions is and has I believe bought 1970’s blocks as far afield as Bradford. I have learnt much from your 2 x posts today that will I hope assist me in my Sherlock endeavours. Thank you.! Spivs and their enablers need to be rounded up and treated like the common criminals that they clearly are.
The first step for leaseholders who believe they have been denied RFR is to issue a section 11A, part 1 LTA 1987 notice on the freehold purchaser. who is then required to respond within one month of receipt..
The section 11A notice requires the purchaser to:
(a) provide particulars of the terms on which the original disposal was made (including the deposit and consideration required and the date on which it was made).
(b) where the original disposal consisted of entering into a contract(s), to provide, a copy of the contract(s).
If the purchaser ignores this or responds with the customary-“we only purchased the shares in the company that owned the premises”. routine – under s11A(b) you require them to provide copy contract agreements (Share & Sale) and if they still refuse you force them to do so via the County Court.
When you receive letters of denial with blatant refusal (incl from Solr’s) to provide the full information as required by (a) + (b) they are in deliberate breach of the LTA 1987, and you must ask why?
just to state the obvious here – but the assumption is that solicitors and freeholders will play fair, which of course they dont feel obligated to do.
Why should they when law today is based around the Mischief Rule? No more Consenting Connivance – can’t possible go back to the Golden Rule, who will fund the Xmas jolly? Then look at how many own Freeholds & Leaseholds themselves….
Here’s the thing- the onus is always on the leaseholder to force the freeholder to comply with the law by taking him / her through the courts. ( This costs money) Legislation should be passed so that the Freehold automatically transfers to the leaseholders if the freeholder is in breach of the LTA 1987. Rather like the threat of ‘Forfeiture ‘ that Freeholders and their agents like to use as a stick with which to beat vulnerable, elderly and intimidated Leaseholders. I shall be writing to Savid javid this week when I am of a more temperate disposition with suggestions for his white paper. I shall include some of the excellent points made on this site. This is a chance to effect real change and we must not settle for bread and circuses- In other words. No Boondoggle!!
Ultimately leaseholders want to own the freehold to their home, rather than just be tenants. Lawyers and valuers view the building as property and investment, but for those who actually live in those ‘properties’. its a home. Currently the law takes no account of that, and leaseholders have very few rights. In any case, even when the law is supposed to prevent exploitation, the average leaseholder is no match for organised freeholders, hordes of solicitors, managing agents and associates. Leaseholders are in fact helpless, so a lot of anger is building up from that realisation. Think of the plantation owners – they also viewed their slaves as ‘property’ and the human factor was removed.
In 2017 Leaseholders, though perhaps not quite slaves, are not very different from ‘farmer tenants’ in early 20thc estates, except that the ‘landlord’ doesn’t have them round for Christmas. So yes, overall, its time for leasehold to go…
Human Rights Act 1998 – no-one uses it. Right to a home & family life… – Quiet Enjoyment? The latter was the basis for the Act. Also there is the Equality Act 2010 – big section on MA’s. Legislation is there but the Tribunals when you look at the paperwork, attempt to dictate the legislation used. This is totally wrong! If you’re in County & above you pick which legislation to use – it is not dictated to you.
Stephen: there is a trade out there of which you are clearly unaware and which dare not speak its name: until after completion that is! No public auction here.
It takes place covertly between a seller and an unrelated buyer and usually revolves round premises the seller wishes to offload pdq. for divers reasons. – usually involving properties nearing or already under 80 yrs remaining.
The first knowledge any leaseholder has is when the letter arrives providing details of the “new” landlord.
So before we go any further, part 1 of the LTA 1987 is already breached. and it is a criminal breach.
The example I have is fully documented (incl contracts) and shows c. 1,100 properties across c. 25 premises in SE England @ Land Registry confirmed price of c. 1.6 million.
Now work that out it is less than £15,000 per unit (aver 2 bed flat)
So what do you think these criminal gangsters demand for “informal” lease extensions or enfranchisement under the 1993 Act.? It is a massive FRAUD.
As you say it does seem a remarkably low figure per unit for properties in the South East with leases approaching 80 yrs
These are clearly large blocks containing around 40 properties each
Have you reviewed the OCE of the freehold titles to see if any overriding leases have been imposed to lower the value of the freehold?
On ground rent portfolios the ground rent can be “skimmed off ” by way of head lease/overriding lease and sold to a type of investor seeking certain income to hedge a liability
This would reduce the value of the freehold to that of the reversion
Insurance companies often being the buyers of the income as the price of gilts has been effected by the demand from insurers needed to back their annuity income
To admins – anyway you can put me in touch with this guy?
To correct typo above:
2nd last para _ it should read £1,500 per unit – NOT even £15,000
This is a form of criminal trading that goes to exceptional lengths to avoid all publicity
I was waiting for that correction! Excellent post Alec, my investigations are most certainly bolstered by the information you have provided.
Is it legal for the exchange of the freehold contract to take place before any qualifying tenants have moved in, then the completion of the sale to take place many months after.
This is what has seemingly happened in my apartment block and thus the developers have apparently circumvented the right to fist refusal. They sold the freehold of our building, containing 181 apartments, for £10!
Question: My father bought his flat in November 2007. A McCarthy and $tone retirement property. He was paying GR from the off and Services to Peverell. Fairhold Homes(No.19) Limited became the Landlord on 2 May 2008. My father was not offered Right of First Refusal (RFR) under act described above. Whats the best way to find out the info that some transgression has been made? I should be able to go through his accounts to see to whom the GR was paid before Fairhold took over.
Question.; 999 year leases. Whats the disadvantages?
No Stephen- there is no “skimmed off” Ground Rent or other overriding leases – just a massive criminal FRAUD taking place in plain sight.
It will all come out in the very dirty washing very shortly.
The leasehold law allows freeholder company ( ground rent investment company ) to transfer the freehold property titles to an associate company owned by the freeholder for more than 2 years..
It costs about £22 pounds per year to keep a dormant company listed at Companies House for getting around the RFR .rules…
Transfer to associate com[any does not require RFR to be offered to Leaseholders.
Ouch! If you are correct then Leaseholders do not stand a chance. I am aware of an an individual with a myriad of ‘dormant companies’ and who is a prolific acquisitor of ‘Residential ground rents’. I refer you to ‘RCP Coast Freehold Income Fund’ and ‘Romneycourt.blogspot.co.uk. I invite you to join the dots……..
Its £13