Good story – in the very bad sense – in the Daily Mail of a woman who bought a flat in South London where the ground rent rises to £1 million a year in 50 years time – after doubling every five years.
God knows how Carole Patterson,44, an HR administrator and mother of two, managed to buy this property in East Dulwich, or a solicitor sign it off or a mortgage lender issue a loan on something so utterly toxic.
Apparently, the freeholder MEA Real Estate Limited is prepared to waive the ground rent for a one-off payment of £100,000, which is described as “a quarter of the value of the property”. We assume this means: what Ms Patterson paid for the flat, because as things stand it most certainly is not the value of the property, which is closer to zero. In today’s climate – that is, after Taylor Wimpey, Redrow and Countryside Properties plc began selling leases with 10-year doubling ground rents – is almost certainly unmortgageable.
The woman suing her solicitor over doubling ground rent bill
Carole Patterson’s one-bed South London flat has become her worst nightmare She faces an annual ground rent bill that will eventually cost her £1m every year Mother-of-two’s contract means annual ground rent will double every five years So in 50 years’ time she would have to pay £1,075,200 a year to keep the home After years of hard work and saving, Carole Patterson was overjoyed to finally get on the property ladder a decade ago.
The Daily Mail omits to mention that the sole director of MEA Real Estate Limited is Mark Edward Adams, although it appears from Ms Patterson’s quote that he acquired the freehold with this pre-existing ground rent term.
A ground rent that doubles every five years is even more odious than those dreamed up by Martin Paine, described as a “crook” in the House of Commons by Sir Peter Bottomley, who added that he was “turning the sleaze in leases into an art form”.
The get-out is the same as that suggested by Mr Paine to his victims: that they sue their conveyancing solicitors for professional negligence for failing to spot the aggressive escalation of the ground rent (that in Mr Paine’s case he himself inserted into the leases).
The firm of solicitors who messed up are given as Shropshire-based FBC Manby Bowdler (“you can rest assured you’re working with property experts who work tirelessly on your behalf, simplify the legal jargon and keep you updated every step of the way”).
Osbornes Law is now in pursuit, presumably on some kind of conditional fee arrangement.
“I first got the letter finding out about the clause when the freehold was sold on. I had no idea about it before. I was pregnant at the time and it was such a horrible position to be in,” Carole told the Daily Mail.
“I just feel so frustrated that something I worked so hard for and saved for has no value at all now. I bought this flat as an investment for my pension.
“The ground rent on Buckingham Palace wouldn’t be as much as what I would be paying at the end of my lease.”
The article references the Competition and Markets Authority finding of mis-selling by plc housebuilders who landed buyers with unsellable properties owing to highly aggressive ground rents.
FBC Manby Bowlder said: “The issues which arise in this case are much broader than relating to a particular firm of solicitors and are being addressed by Parliament.”
Er … well, only up to a point. The debased value of conveyancing in our over-heated property market, along with factory conveyancing practices, also play a part.
Ground rent is, of course, part of the consideration in the deal to buy the flat.
The NPV of that stream of income, assuming it started at £525 per annum and doubled every five years of the term for 99 years, would have a value of £13 million if the discount rate was 6%
This problem, in this case, would not have arisen if when a lease was granted, the NPV of the ground rent is shown next to the premium paid, stating what the discount rate used to value that ground rent income stream. If SDLT is applied to the total, then the problem would have been exposed! – the government actuarial department to set the rate from time to time
This proposal regarding the NPV of the ground rent is just an extension of the logic we have with the Consumer Credit Act, where the Annual Percentage Rate (APR) has to be shown on credit agreements. (apparently, 17% of the population thought it stood for April !)
The imposition of a significant ground rent that grows over time has a value and needs to be reflected in the premium paid for the flat. By requiring the NPV of the rent to be shown, it would enable the purchaser to bid accordingly.
In this case, the deal would have been worthwhile if the developer had given the lessee £13m and the property in return for the obligation to pay those ground rent terms over the next 100 years
“Ground rent is, of course, part of the consideration in the deal to buy the flat.”
You have no proof of that and whether the price of the flat was reduced to reflect the ground rent. It is certainly worth little or nothing to the leaseholder at the moment.
Instructive that a lawyer set up the freehold company with this lease to trap the unwary a few years ago.
The ground rent is very much part of the overall consideration the landlord seeks for the granting of the lease. It is, of course, for no service; the lessee gains no benefit from it whatsoever and therefore must be viewed as a burden on the property that needs to be considered PRIOR to enter the contract.
Just as much as the premium for the lease is a consideration, the freeholder gets further value from the ground rent income. This can be sold or retained, so in addition to the cash premium, the landlord gets he gets a further asset in the form of the capitalised value of the ground rent. Therefore clearly illustrating that the ground rent is part of the consideration the landlord receives.
To assist in calculating the financial burden a ground rent stream imposes on a property, I suggest that the Net Present Value of the rent be shown clearly in what is called the prescribed clauses at the front of the lease so a buyer can easily evaluate this on purchase. Box LR7
A ground rent of £300 per annum linked to the RPI every ten years places a burden on the property of around £10,000
So, a flat sold for £300,000 with a ground rent of £300 per annum linked to the RPI every ten years on a 125-year lease is paying £300,000 plus taking on a burden of £10,000 making the total consideration being paid to the landlord £310,000
Provided this information is clearly shown and understood by the lessee PRIOR to buying the flat, I see no reason why ground rents must be capped or abolished.
So if a flat ordinarily worth £300,000 with a ground rent of saying £250 was re-packaged up instead with a ground rent of £10,000 per annum linked to the RPI every ten years and sold for £20,000 the lessee is not being disadvantaged
Only a idiot like this moron would surrport such a crime. . Halfwit
If you read carefully what I wrote you will note that I do not support it at all. The point I was making was that to avoid this happening the Net Present Value of the rent needs to be disclosed.
From your comments it would appear you did not understand what I was trying to get across, so rather than engage in the debate you regress to child like behaviour by calling out rude names – which you can because of the anonymity afforded by the internet
The anonymity (of the internet) you refer to, you once exploited yourself. When your disgusting self first appeared in this forum it was apparent to all that here was an individual with a (self) interest. You were challenged on countless occassions to man up and declare yourself, your status regarding leasehold. You refused to so declare.
Not sure of the circumstances, but you did eventually reveal yourself to Sebastian and company. Only when the challenges continued did you finally – but not fully, declare yourself to us peasants.
Nobody reads your posts, they are boring, repetitive, and full of jargon.
I do own a portfolio of ground rents and my comments seek to provide a counterbalance to some views expressed here.
By discussing and debating and reflecting on the comments made it might help all of us refine and improve our respective views.
Whatever our respective viewpoints there is no place for words such as “disgusting self” and you do nothing to advance your argument by using such language
I am of the opinion only now leaseholders are becoming acutely aware of the implication of the devastating impact the ground rent will have on the lessor Most conveyancing solicitors do not totally explain the ground rent formula to buyers and few buyers are able to work out the ramification of the formula One can sue the solicitor but the cost of such action in itself is expensive It is time authorities clamp down on such onerous practice urgently
I think the term “devastating” is not appropriate, it is in a case such as this.
Hundreds of thousands of lessee have ground rents that are either indexed linked to the Retail price index or double every 33/25 years or are fixed and even if they represented 0.2% of the value of their property is hardly the cause of stress and worry.
We need measured debate about ground rent. I have dealt with a case recently where the ground rent was £275 linked to the RPI every 5 years . Four years ago there was no issue with such a rent, but the recent media exposure of ground rent terms such as in this case, has caused a knee-jerk reaction and lenders will no longer lend on the ground rent terms of the case I dealt with.
It is inconceivable that a ground rent of £275 linked to the RPI could ever become onerous and blight the property worth some £250,000 – but this near hysteria of grounds following the exposure of this dreadful case has made any ground rent which doubles every 25/33 yrs or linked to an RPI every 5 years unmortgeable
I have a lease hold property ground rents should be fixed amount per year one amount at the start fixed to the end I pay 8£ ayear fixed on a 1000 thousand year lease free holder has never collected it
And your point being ?
It is a very fragile form of property tenure that is supposedly good but has been rendered toxic by “media” coverage. Rather undermines your arguments that there is a rational and demonstrable value system under-pinning the leasehold sector.
There is not, of course.
I disagree – If the media coverage had been measured and professional, then I would agree, but it has not– When carefully reviewed, there is not a problem with ground rent levels. I believe the problem we now face is that all voices can now be heard via the internet – some wise words and some which grab attention by being sensational in their attempt to be heard over the rest of the herd. Invariably those who want to be heard will exaggerate and distort the truth.
What is needed is some measured thought – cladding, as we have seen through your efforts on LKP, needs to be a calm, careful review of each building to quantify the risk – and your approach does seem to resonate and form the genius of proposals to resolve this.
With ground rents, we have claims in the last couple of years that a ground rent linked to the RPI is onerous. Simplistic arguments come forward that if inflation ran at say 3% per annum, a ground rent of £250 per annum would become £404,805 after 250 years followed by several exclamation marks, forgetting of course that the state pension which is supposed to rise by at least the rate of inflation will by then be at least some £14.7 million per annum.
The root of the problem with leasehold is in management. A ground rent in 98% – 99% of all cases are under 0.15% of the value of flats and is a modest outgoing a year, but it has now mutated into a demolition ball capable of wrecking homes up and down the land yet the same rent some five years early was not considered an issue. It is the underwriters of mortgages that have reacted to all the media attention and imposed conditions on ground rent terms, which of course means those properties with rents outside of their criteria become unmortgageable. Again, some commentators try to grab headlines by suggesting those flats are valueless. This installs panic for those who glance at the headlines. The solution I would put forward is to give mortgagees the right to be able to extinguish just the ground rent if they came into possession of the property—the capitalisation of the rent being a defined formula. Knowing a mortgagee can get rid of the rent would make them more comfortable about lending.
The campaigning for change has, in some cases, backfired and caused those who had no problem with their leases to then find they do. It is now unusual for a sale of a flat with a lease below 95 years in London to go through without the request for a lease extension – five years ago, this was only requested when the term was around 80 years.
The service charge that the supposedly management team charge is another headache.
To date I have paid nearly 20,000 in service charge, nearly as much as the 1 bed flat cost 19 years ago.. Where do you go?
“The Daily Mail omits to mention that the sole director of MEA Real Estate Limited is Mark Edward Adams …” It also omits to mention that he’s a solicitor.
The SRA Code of Conduct for solicitors states (para 1.2) “You do not abuse your position by taking unfair advantage of clients or others.”
Although the firm that acted for the buyer would appear to have been grossly negligent one might ask whether it was ethical for a solicitor to have set up such a lease in the first place.
If you review the accounts of his company at companies house it appears that he acquired the freehold after the property was developed . He is not the author of the lease
Has probably bought the freehold in the expectation of doing a deal with the lessees solicitors indemnity insurers
Are there any details of the address of the property? I’d like to get hold of a copy of the lease to see who did prepare the original.
If you read the article carefully it states
“I first got the letter finding out about the clause when the freehold was sold on” – hence why we can be certain the lease was not granted by MEA Real Estates Limited
For those who are interested I’ve done some digging, and established that the property in question is the first floor flat at 187 Lordship Lane, London SE22 8HA.
I’ve obtained a copy of the lease (title number TGL347851) and the escalator clause is plain as a pikestaff – it reads:
There shall be a rent review every five years. At the first review date a sum equating to one and half times the initial rent and thereafter on each subsequent review date a sum equating to double the last rent review”
It’s very poorly drafted, and almost looks like it was added in by a non-lawyer as an afterthought.
The lease is for 110 years, commencing 1 March 2011, and the initial ground rent was £350 p.a., which was in itself a very high sum for 2011. So in 2016 it would have increased to £525, and then on 1 March this year it would have increased again to £1,050.
How on earth any solicitor could have overlooked this is incomprehensible.
The original landlord was the rather exotically named Avril Miatta Cecelia Amina Hamilton, who has since died. The lease appears to have been prepared by a firm of solicitors in Lewisham called Francis Macfoy Solicitors.
The individual solicitor who witnessed the landlord’s signature was Francis Eigbefoh, who appears to still be in practice at Francis Solicitors in Lewisham. – https://francissolicitors.co.uk/ It would be interesting to get his thoughts on the lease.
If you want a chuckle have a look at the section on the home page of their website entitled `Current clients’, most of who seem to originate from ancient Rome!
As you say the wording in para 6 of the lease is a differing style to the rest of the lease. The other flat granted in 2011 does not have that review and neither do the two later leases
I wonder if the price of the flat was lowered during the negotiations in return for a change in the ground rent – if this happened then she was misled because as I advised earlier the NPV of the rent is around £13mill- again if the NPV of the rent had to have been disclosed this situation would never have arisen
She will face an uphill battle as she has owned the lease from 2011 and the usual period for taking legal action is six years and this has long passed