But which are the housing associations that bought rip-off doubling ground rent freeholds?
CMA turns its attention to the freehold owning outfits of Vincent Tchenguiz and Will Astor
Fifteen punters who bought freeholds with 10 or 15-year doubling ground rents from Countryside Properties plc must re-set annual charge to what it was when buyers first bought the lease, the Competition and Markets Authority announced today.
The move will benefit more than 3,400 leaseholders and the CMA chief executive Andrea Coscelli says more housing developers are “to be put under the microscope as the investigation continues”.
This is good news, as some house builders – notably Redrow (about which more on another occasion) – which sold leases with 10 or 15 year doubling ground rents have so far not been made to account for selling properties – often to first-timers supported with taxpayer loans – that are now difficult to sell or obtain a mortgage on.
Countryside Properties plc, then headed by Ian Sutcliffe, was a particularly egregious seller of doubling ground rent leases, selling flats with £300pa doubling ground rents at The Mount, Mill Hill, in North London, as late as May 2017.
Among its marketing slogans is: “We create places where people love to live, where they feel at home and come together as a community.”
The freeholders who have run up the white flag – sorry, have made formal commitments known as “undertakings” to the CMA – include investment firms (often private equity punters these days rather than pension funds) and housing associations.
The housing associations, many of which have charitable status, have not been named.
The CMA also says it will be investigating Vincent Tchenguiz’s Brigante Properties, part of the Consensus Business Group, and William Waldorf Astor’s Abacus Land and Adriatic Land freehold-owning companies that are part of the Long Harbour fund.
It is completely unknown who the ultimate beneficial owners are of these freeholds as they hide behind nominee directors and the companies are often based offshore.
Where these companies have bought doubling ground rents from Countryside Properties plc or Taylor Wimpey, the CMA will be looking for another “undertaking”.
The 15 freeholders who bought from Countryside Properties plc “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.”
This is good news indeed at a time when inflation is now escalating aggressively, meaning that RPI-based ground rents could end up more onerous than doubling ones. In addition, many freeholders who offered to vary doubling ground rent terms to those rising with RPI removed the doubling ground rent review periods, meaning that the ground rent increased throughout the lease period rather than merely doubling on, typically, five occasions every ten years.
The CMA said: “The move comes after the CMA launched enforcement action against 4 housing developers in September 2020. These were Countryside and Taylor Wimpey for using possibly unfair contract terms, and Barratt Developments and Persimmon Homes over the possible mis-selling of leasehold homes.
“After securing undertakings from Countryside to remove doubling ground rent terms from its contracts, the CMA turned its eye to businesses that bought Countryside freeholds and continued to use the same ground rent terms at the expense of leaseholders. The CMA wrote to these businesses, setting out its concerns and requiring them to remove these terms from their contracts.
“Due to the CMA’s intervention, thousands of leaseholders will now see their ground rents remain at the original amount – i.e. when the property was first sold – and they will not increase over time.”
Andrea Coscelli, Chief Executive of the CMA, said:
“Thousands more leaseholders can now rest easy knowing they will not be forced to pay costly doubling ground rents. We believe these terms are unjust and unwarranted, and can result in people trapped in homes they are unable to sell or mortgage – a major cause of anxiety and stress for so many.
“We welcome the commitment from these businesses to do what is right by their leaseholders by removing these terms, and we will hold them to it.
“While this is a huge step forward, our work here isn’t done. We will continue to work hard to free leaseholders from these problematic terms and will now be putting other housing developers under the microscope.”
Secretary of State for Levelling Up Michael Gove said:
“We are restoring fairness in the leasehold system and that’s why we asked the CMA to investigate unjust practices, such as doubling ground rent.
“I welcome their ongoing success in eradicating this unacceptable treatment of leaseholders from the housing market and freeing thousands from such inflated costs. Others must now follow suit, as our work to help all leaseholders continues.
“Homebuyers starting a new lease from this summer will now pay nothing in ground rent costs – setting the path to a more equal future for homeownership.”
Full CMA statement is here:
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.
How can a ground rent linked to the RPI be considered onerous – the rent will have the same value in real terms now and in 30 / 50/100 years time
A pensioner with a ground rent of say £200 per annum to pay can be confident that as a percentage of their income that ground rent payment will be at most the same percentage of their state pension – in fact probably less because of the triple guarantee of the government
A ground rent can only be regarded as onerous if it’s value was not factored into the offer price for the property – a rent of £3000 per annum is not onerous if the price of the property is £100k less
That failure to consider the burden of the rent could so easily be rectified by having its NPV of the ground rent shown next to the premium so the buyer can ensure that the burden of the rent is reflected in their offer
Stephen, do you actually read your comments before posting?Give it up mate and accept that you are on the losing side . Ground Rent is money for nothing and you don’t even get your chips for free… Geddit?
It’s part and parcel of the consideration the developer seeks on sale of the property. A premium is agreed along with an income stream t the outset. It’s set out clearly in the lease. The lease is looked over by the lessee, their solicitor and surveyor over a period of 2- 3 months
Lessees sign up for the deal and then some time later argue it was all too complicated and written in legal speak and should be excused from paying it going forward. It’s rather a provocative stance to take.
Next it will be that it was not appreciated that 99 years meant 99 years. They will argue that they thought that 99 years was another way of saying forever, and again the government should step in and solve the problem by extending all leases to 990 years for no cost
Finally, there will be the realization that developers having been buying land and materials employing staff and selling the property and seeking a price greater than what they have paid out. That surplus is completely unregulated and there has been no disclosure. Request will be made for that surplus to be handed back to the lessee with interest
I am sorry but this is just not true. House builders do not factor in the ‘value’ assorted valuers have devised (usually commissioned by the large London freehold owning companies) and which sadly courts have accepted on occasion.
Housebuilders regard the income of leasehold quite casually: unsurprisingly as they sell homes for as much as they can. They have told MPs the difference in value of freehold properties and leasehold ones is merely a few thousand pounds. They are decidedly not on message with the leasehold monetisers, thankfully. There is no discernible difference in sales price between a lease with 125 years and one with 999 years, yet obviously the long term implications are huge.
The only good point you make is that lease terms should be clearly laid out on sale with the ground rent conspicuous and explained.
Unfortunately, your sector has let you down, repeatedly. It cheats. Again and again. And patience with it is exhausted. Even the political party that will defend property strongest, will not defend the practices of your sector.
After the building safety scandal, I cannot see leaseholders again becoming the gullible consumers that made this game such an earner.
My ground rent increases along with RPI not CPI. I believe most if not all inflation linked leases are tied to RPI. February’s RPI figure was 8.2% whereas CPI was 6.2%. So if my state pension increases with CPI then I am 2% worse off. And what happens if they remove the triple lock ?
Much of the conversation about ground rent relates to recent innovations in this area – doublers etc. In the north west where I live leaseholder has been commonplace since Adam was a lad. It puzzled me why, I looked for answers. The most satisfactory answer I got was that aristocratic landowners, when selling areas of land to developers, insisted on still having a hold on said land. Leasehold gave them that hold, it was not at that time a money making exercise, it was a device which enabled the enfeebled landed gentry to keep up appearances – they retained ownership of vast areas of land as freeholders. Prior to recent times there was no discount(?) when buying leasehold in the north west. Despite what Sebastian has posted above, I remain dubious that there ever is a discount for buying leasehold rather than freehold – even today. Do builders ever say to prospective buyers “You can have this house for £250,000 freehold or £220,000 leasehold?
It is claimed that developers added on the ground rent terms without a moment of thought -if they got it though when granting the lease it was handy, but if not their world would continue to spin. Even if it could be shown to be the case why should that lessen the freeholders claim for the correct level of compensation when it is to be reduced to a peppercorn on a statutory lease extension.
I knew of a case where a couple who had to sell their house and put it on at a crazy figure to buy more time and much to their surprise somebody came along and bought it. Should that purchaser be entitled to renegotiate the price some years later and get a refund ?
What of the person who does a quick makeover on their house, spend say £3k on the bathroom to help increase the sale price by £10k – should that type of “sharp practice” be regulated, and the purchaser get a refund when it all comes to light after the sale completes
The case with a ground rent is that often the review to the RPI consists of a whole schedule in the lease setting out the terms of the review. To argue it was all too complicated, written in legal speak and that as it is for no service all terribly unfair is disingenuous to those who did know what they were entering into and will pay as they regard themselves as morally responsible people who strike a deal and keep to it.
I have plenty of factual ( not speculation ) evidence of leasehold properties being sold either side of the second world war, where the ground rent was 10-20% of the rack rent of the property. A far from insignificant sum ( a week to two weeks wages ) and for many having parts of the purchase price made up of an obligation to pay a ground rent, was seen as part of raising the finance. This is certainly the case in commercial leases
I reiterate. Abolish Leasehold. Ground rent is money for Nowt. Offshore / Onshore freeholders should be looking over their shoulders. Most should have their collars felt for racketeering. The spectre of Rachman still stalks the residential property industry, but instead of freeholders using thugs with Alsatians to Intimidate leaseholders/ tenants who question their fraudulent practices, they use dodgy management agents and shady solicitors. The party will soon be over for these shysters.
Doubling ground rents and those linked to inflation needed to invalidated by Government as an unfair contract term.
I would agree where the terms are not set out clearly in the lease.
If they are, then it would be very difficult to argue that they unfair – it would make a complete mockery of contract law
A developer seeks say £250,000 for the flat and also requires you to pay throughout the term a rent of £350 perhaps linked to the RPI. Those terms are shown in the draft lease. A period of some 2 -3 months passes and during that time the lease is reviewed by the lessee and their solicitor and comments made and eventually signed. It is very difficult to run a convincing argument after the contract is signed that the imposition of such a rent is unfair. The fact the developer seeks to get the most value from the sale of the property is to be expected in our free market economy, it is for the purchaser to negotiate or reject the terms, so the developer has to come back with differing terms.
The idea propagated on this site is that purchasers had no choice but to sign up and therefore should be let off various terms after the deal has completed – There are many other types of transaction unrelated to property ( where I was not legally represented) where I feel I have no choice but to accept the terms being offered by the vendor – are we all going to be granted rights to unravel those deals and renegotiate differing terms.
Ground rents have been part of leasehold of course for centuries. Lease granted in the late nineteenth century, the ground rent was often around 10% to 20% of the rent the property could be let for . Today’s ground rents are a great deal less
The ground rent terms (aside from 10 year doublers) are invariable modest sums of a few hundred pounds a year, but the hysteria that has broken out on the subject not helped by lenders imposing limits as to what they accept has created a great deal of problems. We have a situation where a ground rent of £1 per day can severely impede the sale prospects of a flat worth £300,000
Bizarrely, the bigger the rent the more notice will be taken of it and reduces the argument yet further that it was “unfair” as the premium paid for the property will reflect the size of the rent . At say £10,000 per annum, the premium sought for the property compared to one with a peppercorn could be some £250,000 less. The owner of the flat paying £250,000 can hardly claim that the ground rent of £10,000 is unfair.
The problem could so easily be addressed by having the NPV of the ground rent shown next to the premium for the property, so the purchaser understands the value of the burden the ground rent has on the property. A ground rent of, £350 a year linked to the RPI would have a burden of some £10,000
I disagree entirely, just because the terms are set out clearly in a contract doesn’t remove the ability for those terms to be considered unfair. Otherwise there would be no point in having the Unfair Contract Terms Act 1977 and it would be a totally pointless law. Clearly the doubling of ground rents is seen as an unfair contract term. A doubling ground rent say over 10 or 15 years could actually result in a lower ground rent review than one linked to RPI if inflation is substantial over such period. Why invalidate a doubling rent clause but not one that links to RPI. (As a bare minimum the clause should be amended to link with CPI if nothing else). I believe the Government are looking to do this with final salary pension schemes allowing the annual pension increase to be linked to CPI and not RPI as the latter is too expensive for the pension provider.
We would like the state pension to be linked to the RPI . Therefore why is it so wrong for a developer to what to preserve the purchasing power of the ground rent by linking it to the RPI ?
When you buy an annuity with your pension pot most people strive to acquire an income that is indexed linked
iIRC leading builders agreed that a ground rent is onerous once it exceeds 0.1% of the property value.
They were then presented with examples of ground rends with RPI increases… and they exceed 0.1% of the property value.
So by the builders own criteria – RPI is onerous.
Indeed as a ground rent gets larger then it will impact on the value of the property – as I suggested a rent of £10,000 a year would impact the price of the property by £250k – but if instead of paying £300k for the flat the purchaser taking on such a rent pays £50k – the purchaser can hardly complain that the rent is onerous
A ground rent whose size effects the value of a property is not onerous if it is considered when formulating an offer on a property – Perhaps onerous should mean where there is, because of poor wording, or a deliberate intention to deceive there are clauses that push through rent rises greater than inflation
To address the fear some lenders may have on ground rents perhaps they should also have the right to redeem any mortgage on which they hold a charge – so if they had to take back possession to help dispose of the property they may add to the mortgage debt the cost of extinguishing the ground rent – therefore any irrational fears a lender may have could be addressed
“if instead of paying £300k for the flat the purchaser taking on such a rent pays £50k”
There is no discount for Leasehold.
MP’s reviewed the Land Registry and came to that conclusion.
“Perhaps onerous should mean where there is, because of poor wording, or a deliberate intention to deceive there are clauses that push through rent rises greater than inflation”
The banks and builders have already agreed on what is onerous.
“lenders may have on ground rents perhaps they should also have the right to redeem any mortgage on which they hold a charge”
Lenders won’t do that – it would have a terrible impact on their business.
“lenders may have on ground rents perhaps they should also have the right to redeem any mortgage on which they hold a charge”
Lenders won’t do that – it would have a terrible impact on their business
Why ? It would only apply if the mortgagee repossessed the property and would avoid them being “Hoist with one’s own petard” therefore to make the property easier to sell they could extinguish the ground rent on payment of a premium . They would add the premium to the mortgage debt.
The number of cases would be limited to those where the property was repossessed, was leasehold and had not a great deal of equity and had a high ground rent – hardly likely to have a “terrible impact” on their business model as they would be getting the money back when the property was sold
More importantly, mortgagees would feel more at ease over lending on leasehold property if the ground rent was on the high side
“Mortgage redemption is the process of paying off the outstanding balance on your mortgage and any other fees associated with it”
I cannot see any bank paying off all the leasehold mortgages with onerous terms.
Just one of those mortgages would mean the banks incur a huge loss!
And there’s a lot more than one – hence the CMA investigation.
The cases I envisage would be where the mortgagee took back possession of the property and were trying to sell the property to recover their monies.
They may well wish to get rid of the ground rent to increase the value of the property and would pay the premium to do so, adding it to the mortgage debt to be taken out of the sale proceeds
Currently, they cannot do it, but if they could, they may not see a ground rent more than 0.1% of the value to be a problem
“mortgagee took back possession of the property”
In other words – repossession.
The occupier is has now lost any equity and their credit rating.
The bank won’t pay a premium to get rid of ground rents because they would loose money.
If the property is repossessed, the lender wants and is obliged to get the best price for the property .
If a property worth say £250,000 has a ground rent of say £500 per annum rising by inflation the flat may because of the size of the rent be un mortgageable and have to be sold to a cash buyer who may only pay £220,000
If the mortgagee could extinguish the rent for say £20,000 then they may get a better price for the property of some £30,000 (i.e. difference between £250,000 and £220,000 ) by spending £20,000. The bank benefit as they will get a quicker sale and a better price to cover their outstanding mortgage which will have increased by £20,000
“If the property is repossessed, the lender wants and is obliged to get the best price for the property .”
Repossessed properties are usually sold at a lower price for a quick sale because time = money. Er your own comments even alluded to this with an example of a £250k property being sold for £220k!
The banks cannot extinguish the ground rent.
They are simply the new owners stuck with the same onerous terms.
But – as you seem to ignore – the previous occupier has now lost a home, their credit rating and any equity.
A nightmare situation for everyone that’s best avoided.
TSB lending criteria: “A maximum cap of 0.1 per cent of the market value of the property can be charged annually as ground rent for new-build houses. For new build flats and maisonettes and all second-hand properties, the cap is the higher of 0.1 per cent of market value or £250.”
My flat’s market value is £105k and ground rent linked to RPI is now £260 p.a. so my flat is not eligible for a mortgage with TSB Bank.
Prior to the recent outbreak of near hysteria over ground rents such a rent would be seen as a bit on the high side and perhaps would have impinged on the value of the property by £1,500 to £3,000 at most Because of this hysteria, some lenders will now not lend
The lenders concern is that if they repossessed the property, they might struggle to sell it. Therefore, it would help lenders get over this hurdle if they found themselves repossessing the property they be given the right to be able to remove the ground rent by serving an appropriate notice on the freeholder.
It is proposed that lessee would have the right to just remove the ground rent rather than extending the term – this would avoid the need for a valuation of the reversion
These two ideas I have outlined above are where the debate needs to be going. Suggesting that ground rents of a few hundred pounds agreed between parties who were legally represented over a number of months be abolished without adequate compensation is highly provocative and makes the parties polarize. Also, those that spout such extreme ideas tend to be ignored and on the other issues which they feel strongly, and may very well have a point to make, may find they are ignored
It is simply staggering that a ground rent of 71 pennies a day can make a flat worth £105,000 un mortgageable – the fuel cost of moving a family car 3 miles or 1/4 of 1 glass of wine !
I’d like to have my ground rent removed and of course the freeholder would need to compensated. Unexpired lease term is 130 years. Could I force the lease to be extended under current legislation which would I understand would remove the ground rent ? And I think the lease would have 99 years added. There shouldn’t be any marriage value. Is this possible and something worth considering ?
If you have owned the flat for more than 2 years, you have the right to extend the term by 90 years to become 220 years and the ground rent fall to a peppercorn
The capitalized value of the ground rent may be of the order of £8,000 and the value of the reversion just £185 a total of £8,185. In addition, there would be your own costs and the freeholders own valuation fee and legal costs. This could add another £4,000 to £5,000 to the cost
The work involved in the valuation is breathtakingly simple and the legal costs of preparing the new lease very simple as it is varying only the term and the rent – this is where significant savings to the lessee could be achieved – making the landlord bear his own legal and valuation fees , further setting prescribed figures for the capitalization rate and the deferment rate and producing a standard template for the deed of surrender and re-grant .
It was originally intended that a statutory lease extension would not need mortgagees consent, as a mortgagee would have no objection if the term was increased and the rent dropped. Unfortunately this did not come to pass and lessee do face significant costs as mortgagee consent has to be applied for a statutory lease extension
Thanks for the info much appreciated. There is no mortgage so that’s not going to affect me. However the costs as you’ve outlined are huge and probably not worth pursuing given the rent is £260 p.a. It would take many years worth of ground rent savings to make the exercise worthwhile. The rent is revised every 15 years and was only increased just over a year ago, so there is a positive in that the rent won’t actually increase for another 14 years when it is then reset according to RPI. (A rent increasing annually in line with RPI would be horrendous due to to the compounding factor).