What does this say about setting new ones to zero?
The government is poised to exclude retirement house builders from the much delayed ban on ground rents.
Headed by leading retirement builder McCarthy and Stone and Churchill Retirement (which is privately owned by the McCarthy family), retirement house builders have been lobbying hard for an exclusion.
Their argument is that the ground rents – which are high in retirement housing – pay the developer for the communal areas of lounge, kitchen and laundry.
The retirement house builders have declined to state that buildings which do not have communal facilities should therefore have zero ground rents, although they have been invited to do so by LKP.
Retirement home builders fight off leasehold ban
The government is poised to exempt retirement home builders from a ban on charging ground rent after some of Britain’s biggest providers said it would dent the supply of much-needed new homes for older people.The property industry has been on tenterhooks since the end of 2017 when the government fi
McCarthy and Stone argues that without ground rents the cost of the flats would be £15,000 to £20,000 more than at present.
It is to be hoped that government has not been persuaded by any notional pricing models dreamed up by the retirement housing lobbyists.
The Times says share in McCarthy and Stone have fallen by a fifth since 2017.
Spencer McCarthy of Churchill Retirement is quoted claiming land have fallen by a third.
Rather more important than the threat of an end to ground rents is the stalled housing market, which has markedly reduced the number of pensioners seeking to downsize.
On the other hand, the Times quoted Phily Bayliss, head of later living at Legal and General which owns a couple of upscale retirement village providers, said:
“The idea that we are going to keep in a feudal system of ground rents to prop up the housebuilder-developer model just doesn’t seem appropriate.”
Sebastian O’Kelly, of the Leasehold Knowledge Partnership, was quoted:
“We would rather that ground rents disappear and there could be a separate charge if there are communal areas.”
At least this would mean that the charge could not be made if the communal areas disappeared.
The cave in by the government is a shame, as last summer the retirement house builders were convinced that the game was up with ground rents.
The old retirement volume house building model – kicking out small flats; loading the lease with income streams; flogging the freehold to speculators like Vincent Tchenguiz (who nominally owns the old McCarthy and Stone freehold book) – is undergoing a significant revision.
McCarthy and Stone is building up its management arm. It holds the management via a headlease and the communal services are becoming more sophisticated.
As the businesses move on to long term management the need for ground rents via a lease disappear.
Indeed, LKP has made the case to McCarthy and Stone that selling on the freehold to assets the company holds on to for the long term may well prove short-sighted and an impediment in the longer term.
In short, LKP felt that the retirement house builders heart was not in the fight for ground rents and that the volume house builders are all moving on to a retirement community operator model.
The Association of Retirement Community Operators (ARCO) has long argued against the case for ground rents, but supports substantial exit fees instead to pay the fluctuating costs of running these businesses.
If the government is making an exception to retirement ground rents, we cannot be optimistic for a measure to make ground rents in the wider housing market set to zero, as ex-Communities Secretary Sajid Javid promised more than two years ago.
Nonetheless, the government had repeated that it supports a peppercorn ground rent model.
We hope that this means zero, but it might mean nominal ground rents. In which case, the leasehold game beloved of developers and freehold speculators here and offshore will still have legs.
Related posts:
Churchill Retirement donates £150,000 to Conservatives. To retain ground rents, by any chance?
Did government cop-out on retirement ground rents stuff new thinking in the sector?
Ground rents to be allowed in retirement housing, says government
Retirement housebuilders and speculators plead to be allowed ground rents in the Evening Standard
Pensioners hammered with 88% rise in ground rents, says Better Retirement Housing
Tory maverick MP Crispin Blunt is urged to back Help To Buy ONLY on commonhold
Oh and Theresa May paid a visit to McCarthy and Stone developments in Maidenhead 2018!
McCarthy and Stone deliberately promote a hotel style tyoe of living for the elderly playing on the planning policy rules and regulations for the alleged need for ” more retirement housing!
They are charging older people high ground rent, service charges, costs for change of lease and cost of resale of the flat. Selling on a flat is difficult as its age restricted. It takes years to sell and whilst on market you still have to pay the service charges.
The management companies that run the properties are linked to the builder. They charge massive costs for a communal lounge, cafes, laundry facilities, even beauty rooms and restaurants.
They need to get together and run it themselves and get rid of the maangement companies.
Why is the Government poised to exclude retirement house builders from the much-delayed ban on Ground Rents (GRs)?
McCarthy & Stone (M&S) and sister company Churchill Retirement have been lobbying hard for exclusion on the ban of GRs. They attempt to say they have too, so they can offer communal areas of lounge, kitchen and laundry rooms, what utter nonsense.
M&S like all big builders have land banks and to compare the same area of land for housing such as semis and detached there is a requirement of each dwelling to have a garden front and rear, with a garage and off street parking for each house for 2 cars.
An area of land for a house compared to a flat is a ration of circa 6 to 1, land values for building can cost £120k for a simple plot of land for one dwelling. This is why greedy builders build flats because they make so much more money.
Retirement house building such as those built by M&S has declined, but this has been because the values begin to fall straight away as you purchase the right to use stairs, kitchen, lifts, laundry and communal rooms which like a new car purchased for £100k lose ££20k when first taken for a drive in VAT at 20%.
M&S have argued that without GR the cost of the flats would be £15 to £20k more. This is fiction and the Government knows this, but the lobbyists have been at work persuading Ministers not to remove GRs.
M&S claims a 20% fall in Retirement Developments since 2017, and Churchhill Retirement claims land values have fallen by 33%. Of course, these figures are based on their own forecasts of their Land Banks.
A stalled housing market is because of the adverse publicity since 2000 when they used Peverel Retirement (now Firstport Retirement) until circa 2015 when M&S removed Firstport Retirement as Managing Agents (MA) from their developments.
The number of pensioners seeking to downsize has not altered. What has altered is pensioners knowledge of M&S and how they have been allowed to Exploit Leaseholders with Government knowledge.
The communal areas add to the ambience of a development and a selling point which is like a Loss Leader except the Loss is with the Retirement Flat Leaseholder as the value of some 1-bed flats falling by 48% from £135k to £75k or 2-bed flats at 40%.
If Government do cave in it will be another nail in their coffin along with Brexit and they may lose some 4million voters.
The old Retirement volume House Building Model has moved to the Sophisticated Retirement Villages and M&S supposed to have seen the downturn in 2002 then why is he moving back into a market that doesn’t want his developments.
The Consensus Business Group owned by The Tchenguiz Family Trust owns over 300 companies including M&S, some 20 plus Fairhold Companies which M&S sold within the first 2 years after development.
If the Government is making an exception for Residential Retirement GRs and as the leading QC says “No Monetary Value” then we will have been sold down the river again, as Government had repeated that it supports a Peppercorn Ground Rent Model.
Chas, Those that bought into the McCarthy & Stone “lifestyle2 and paid a hefty premium so to do, did not do so to be systemically cheated by the freeholder (Tchenguiz Family Trust Group companies and Peverel/Firstport also part of the Tchenguiz Family Trust group of companies.).
An admitted fraud involving a minimum of 65 targeted developments where work was “identified as needing doing was subject to wholesale pre-meditated price fixing for an amount believed to have netted £1,400,000 and for which residents have thus far been offered a paltry £100,,000 as a goodwill gesture. The problem McCarthy & Stone have selling their shiny new developments comes when any potential purchaser does any kind of research into the fate of previous McCarthy & Stone customers.
Michael, what is a shame is when McCarthy & Stone began they were said to be excellent for circa 6 years in the late 1980/90s. M&S began to use an Estate Agent called Peverel to sell the development Flats. M&S decided to use Peverel then as Managing Agents so they not only sold the flats they managed them as well.
This is when the trouble was first noted as Service Charges rose quickly and higher than was expected. The Warden Controlled Flats needed a Residential House Manager (RHM) or (Warden). They began to charge a Rent for the RHMF
to the residents circa 50% above local flat rentals because they knew the elderly only wanted a quiet life and were not expected to complain. Other Costs were also increased, which benefited the company and themselves so started the hundreds of complaints for missmanagment of the developments and costs.
In circa 2003 they met with royalty and were also advertising falsely which cost them £2k in fines, Also a case against the media which claimed they were exploiting the retirement sector which the courts upheld, costing them hundreds of thousands of pounds, (check this site archives just put in the name McCarthy).
They probably have a lobbyist system second to none, which must have worked overtime, if they are to be exempted from Ground Rent Charges when others will not?
From the mouth of babes …
In 1983 I purchased a 4 bedroom semi-detached house in a very smart area of Birmingham for £35k. It had 55 years left on the lease and I purchased the Freehold for 10 times the Ground Rent, £350.
In 2006 I purchased a flat which had 79 years left on the flat and I should have applied for a lease extension.
This flat was built in 1986 and sold for £38K which when you extrapolate the price and the size of the flat, it was very expensive.
The flat owners over the next 66 years will be expected to pay circa?
* Ground Rent of – £10,128
* Service Charges – £84,744
Purchasing a Retirement Flat from a McCarthy & Stone Development will be much more expensive when the value of each Flat begins to lose value a lot sooner and of course, you pay a very high Premium, some claim this is as high as 25% for the:-
* Lift
* Kitchen
* Laundry
* Communal Living Area
Ground Rent of £500- plus
Services Charges of £2,000 – plus
Value of Flat falling by possibly 40%
McCarthy and Stone plc
Retirement housing company agrees to change its lease agreements
1/09 14 January 2009
The OFT has secured an agreement from a major builder of UK retirement apartments to amend its leases, especially in relation to the re-sale of properties.
McCarthy and Stone plc has agreed to remove from future contracts, and not enforce in existing contracts, a term in its leases that involved charging consumers a ‘transfer’ fee of one per cent of the sale price when the property was subsequently sold. The OFT considered this term was likely to be in breach of the Unfair Terms in Consumer Contracts Regulations 1999 (the UTCCRs). The company said that it did not agree with the OFT’s view but co-operated with discussions and agreed to the changes. The company has also agreed to amend various other terms.
The OFT has raised the issue of ‘transfer’ fees with the proposed body that will be responsible for delivering a code of conduct and redress scheme in the homebuilding industry, which has agreed to consider the matter and facilitate discussions with the industry. This body is being formed in reponse to the OFT’s Homebuilding market study.
Mike Haley OFT Director of Consumer Protection said:
‘These changes will benefit thousands of elderly and potentially vulnerable residents selling their homes. We are pleased that the changes have been accepted and implemented without the need for further action by the OFT. Moving forward, we welcome the opportunity to work with the code body for the homebuilding industry as a means to improve lease agreements across the sector. ‘
NOTES
1. McCarthy & Stone plc retirement apartments are typically house-manager assisted retirement housing including communal areas.
2. For the financial year 2006/7 McCarthy & Stone plc properties had an average gross selling price of £190,700 and the average age of purchasers of standard developments was 77 (McCarthy & Stone Annual Results, 2007).
3. The UTCCRs apply to standard contract terms with consumers. The UTCCRs protect consumers against unfair standard terms in contracts they make with traders. The OFT, and certain other qualifying bodies (such as local authority trading standards, national regulatory bodies, and Which?) can take legal action to prevent the use of potentially unfair terms. A term is likely to be considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of consumers. The UTCCRs say that a consumer is not bound by a standard term in a contract with a trader if that term is unfair. Ultimately, only a court can decide whether a term is unfair.
4. The leaflet Unfair Standard Terms (pdf 71 kb) provides general guidance for consumer advisers on the UTCCRs. See the Unfair Contract Terms Guidance section of this website which is a comprehensive guide to what the OFT believes to be fair and unfair terms in consumer contracts. The guidance is based on the OFT’s experience of enforcing the UTCCRs, and is aimed at traders and their advisers as well as consumer advisers. OFT has also published the sector-specific Guidance on unfair terms in tenancy agreements (pdf 542 kb).
McCarthy & Stone are struggling and have initiated schemes to improve their financial position.
The average selling time for an apartment has slipped from under 12 months to around 18 months.
To address this, they have re-trained their sales team. McCarthy & Stone are now aiming for a 50% plus sales target for off plan pre-build sales.
They are increasing the percentage of rental opportunities.
They are cutting costs. 200 staff have been let go in recent times.
They have identified cheaper methods of building developments,So many of the new developments will have a similar design.
They have re-tendered for contracts, demanding cheaper prices..
One immediate consequence of this is that long term auditor Deloitte, could not match the tender price and have been replaced.
They have taken the management of their developments in house
“Lead us not into temptation” as it said.
History teaches us that when a freeholder/developer is heading for the financial rocks and they own the managing agent with access to all that free cash, ways will soon be found to “liberate” that money. Isn’t that right Mr Tchenguiz?
McCarthy & Stone are talking self-serving nonsense. They grossly over-price their new builds, so are already reaping a pretty return, even without ground-rent. In 2001, our tiny one-bedroomed leasehold flat cost MORE than the three-bedroomed freehold house (in a respectable area) which we sold. They are just being greedy, and shame on the Government for not seeing through them. Even then, it was possible to spot a McStone development a mile off. They were all the same, so I’ve no idea what savings they are hoping for now, with: “So many of the NEW developments (having) a similar design”.
(Incidentally, Kevin McCloud’s recent Channel 4 series ‘The Street’ has illustrated that ingenious new-build does NOT need to be expensive.)
The Times article quotes the warning threatened by “some of Britain’s biggest providers”, that: (abolishing ground rent) “would dent the supply of ‘much needed’ new homes for older people”.
I take issue with the phrase ‘much needed’. Obviously, the likes of McStone will trumpet this, as this is what they build. It’s how they make their money. However, the increasing sophistication of telecare means that more older people can safely stay in their own homes, while simultaneously avoiding the leasehold tap altogether. Of course specialist retirement housing will suit some, but having seen at first hand the reality of McStone’s provision, I will be moving heaven & earth to stay put, in my comfortable freehold house. Not for me the questionable joys of the ‘communal lounge & laundry’.
Looking to the future, if ever I do come to need specialist provision, I would only ever entertain something imaginative, freehold/commonhold, or rented. McStone will NOT be filling this bill.
I believe McCarthy & Stone place a 25%-30% valuation on the “Lifestyle” aspect of the development?
Taking Crowthorne, Berkshire as an example, a large 2 bedroom new build flat with bathroom is available for £288,000.
Meanwhile a much smaller 2 bedroom new build without a bathroom is available from McCarthy & Stone for £338,000. £50,000 above a larger standard flat.
So clearly there is a price premium being charged. On top of the selling price ground rent is charged amounting to £9.78 per week. Over a 10 year period that is an extra £5,085 paid out for absolutely nothing.
Now let us look at the service charges.? Remember they start at an artificially low level in order to attract initial purchasers, and then particularly in the retirement sector rise dramatically(just wait until the roof or lift needs replacement?).
The service charges quoted are for a two bedroom flat £186,30 per week!
To put it into context that is more than the state pension!
Who can really afford to buy?
Michael
You state “Over a 10 year period that is an extra £5,085 paid out for absolutely nothing” but this is part of the consideration for the deal. It is shown in the draft lease before signing and presumably the lessee will have had a valuation of the property done by a professional and be advised by professionals throughout.
Knowing you have to pay this rent “for no service” is clearly unattractive and needs to be reflected in the price you offer for the lease.
This is why I believe the Net Present Value of the rent needs to be clearly shown next to the premium and be calculated using a defined discount rate set by the Government. With SDLT calculated on the sum of the two so the purchaser is fully aware of what they are entering into.
Stephen, you posted
“Over a 10 year period that is an extra £5,085 paid out for absolutely nothing”
It is shown in the draft lease before signing and presumably, the lessee will have had a valuation of the property done by a professional and be advised by professionals throughout.
How many purchasers remember a Draft Lease being shown to them, does anyone remember seeing a Draft Lease?
These professionals you mention had presumably had a valuation of the property who would these be?
Stephen, Fine words. However is it likely that the solicitor acting on behalf of the purchaser will point this out, especially if they take up the McCarthy & Stone offer of free legal services provided they use the McCarthy & Stone recommended solicitor?
When the elderly decided to downsize in the 1980s they may have paid off their mortgage. McCarthy & Stone (M&S) were aware of this and the downsizing from larger family housing had become common and they knew it.
M&S knew about the value of advertising showing their developments as a family development as most purchasers were single people who no longer require a large house. Knowing this McCarthy decided to add, kitchen, laundry, lift, and communal lounge, as an encouragement to entice the elderly to purchase what they called Apartments, not Flats, sound better.
The advertising was and still is using wording that has been challenged.
Recent advertising had been, such as:
*Virtually Freehold
*Stunning Low Maintenance Apartments
*Designed Exclusively For Over 60s
*Enjoy Your Own Privately Owned Apartment
*House Managers Who Take Care Day-to-Day
*Can Spend More Time Living Retirement to the Full
*Homeowners Lounge
*Guest Suite For Family & Friends
I have seen first hand an elderly family member who purchased a M&S Flat in 2004/05 for £135k now for sale, where recent similar flats sold for less than £75k, whose Service Charge was close to £2k a year and GR of circa £500, (£208 a month).
The flat was a cash purchase of £135k and for the past 15 years between Service Charge and Ground Rents and S20 contracts they will have paid another £30k making a total of £165k and the value has plummeted by over 40%, so the flat has been a financial disaster and of course there could possibly be a 2% Exit Fees (£2k) and £139 for the Welcome Packs to give to the new purchaser. The Rent for the Residential House Managers Flat is circa £8k a year £150 more per month than local 2 bed flats?
Some developments have been devalued not only by the Housing Market but also by the use of Managing Agents, Firstport Retirement along with Landlord Fairhold and their Agent, Estates & Management, and Leasehold Exploitation.
Further to the posting above regarding Firstport Retirement. Where the Firstport CEO Nigel Howell, has claimed in a letter to all of his staff, (copy available) where he claims to have met with MPs who named and shamed Firstport in Parliament.
Nigel Howell claims after he met with these MPs, they were hugely impressed and supportive when hearing all the work Firstport had done to keep homes looking and feeling great, really???
Can anyone of the MPs who support us confirm these meetings?
the ation it has recently
This ban is never going to happen
Housing rip offs will only be reformed if it becomes a top item for major reform in the next election.
The current government receives too much money from a few property tycoons to make changes that benefit the ordinary homeowner.