Justin Madders, the Labour MP for Ellesmere Port and Neston, has unveiled his Bill to short-circuit the smokes and mirrors calculations of the leasehold sector and allow leaseholders to buy their freeholds for 10x annual ground rent.
The Bill – in the extraordinary event that it is accepted – will render further Law Commission consultation redundant.
It would also demolish an edifice of private equity speculation in ordinary families’ homes through ownership of freeholds.
It might be argued that 10x annual ground rent is a bit severe, but freeholders have had a good run in the leasehold game – several centuries for some players – so they mustn’t grumble too much.
Furthermore, they have managed to nobble the court system with some fag packet calculations for leasehold valuations, with the accepted mathematical models commissioned by toadying estate agents for the larger freeholders.
All in all, and in a spirit of win-some, lose-some, this Bill seems fair enough.
Mr Madders said:
“For all the talk of reforming the wild west world of leasehold, there has been precious little action from Government. Too many people are trapped in properties with unfair leases that a failed system has allowed to proliferate and there is little prospect of Government backed legislation coming to their rescue.
“The Bill will allow people to purchase their freeholds in a simplified, efficient and reasonable way with the purchase price being no more than ten times the annual ground rent.
“That way, everyone knows where they stand and those who want to buy the freehold can do so quickly, for a fixed maximum and without the responsibility for the freeholders costs.
“The Bill also sets up a formal inquiry into the leasehold scandal so that we get the full picture on what has happened.
“There are still many unanswered questions about the role of developers, lenders and other advisers that we need to get to the bottom of so we have a house-building industry that works for the whole country.”
The Bill is backed by LKP patrons Sir Peter Bottomley and Jim Fitzpatrick, and Justin Tomlinson, Ruth George, David Hanson, Ian Austin, Antoinette Sandwich, Bill Esterson, Gareth Thomas and Derek Twigg.
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Lies, damned lies and statistics
Excellent idea, but the formula is far too simple. How are the lawyers, the managing agents and the rest of the fleecehold gang gonna make their money, if everyone understands what’s what?
Ho, ho.
In California after the financial crash in 2008 where large amounts of property came onto the market at distressed prices as home owners defaulted on their mortgages investment companies such as Blackstone (who employs former chancellor George Osbourne) swooped and bought out those properties.
They then rented out those properties(largely to the very people who had lost their homes) which created income for them, and of course they knew that eventually property values would rise as the economy improved.
Gradually they raised the rental prices until they were no longer affordable.
In a bid to counter this the California authorities are trying to bring in rent controls, which is being thwarted by extensive lobbying on behalf of Blackstone.
The arguments against rent controls are almost identical to those being put forward by the ground rent speculators in this country, ranging from reducing new builds, reducing pension fund values, stability in the market, reducing the standard of maintenance etc.
Hooray, by adopting such a simplistic method of calculation in purchasing a freehold, this will
1. provide greater transparency for leaseholders at the outset of purchasing a property of future costs. This is one of a few purchases, whereby no one could ever predict or calculate the cost of purchasing the freehold at the time of their new or second hand property purchase.
2. Will bring England and Wales in line with Ireland & Scotland legislation.
3. Will prevent leaseholders human rights being breached.
4. Will prevent freeholders abusing leaseholders any longer.
The danger of such a simplistic formula is that for certain it would be challenged as unfair. No scientific basis has been put forward to substantiate such a valuation and it is completely out of line with market values.
If someone bought a flat with a 30 year lease at a substantial discount because of it why should they pay only a hundred pound or so to have their lease extended and make a substantial windfall profit – the vendor of the flat would get none of the windfall and neither would the freeholder.
It makes those who back it look foolish and the important points they have to say on other matters may well not be listened to.
If this Bill were law, short leases would be sold with higher valuations.
Short lease would rise to the same value as long leases but there would be no compensation for the vendor of the flat who sold is short lease with a substantial discount to reflect the much higher premium
Stephen, I find your comments hillarious, you feel that 10 x ground rent would be unfair compensation to freeholders ? What about the years of unfairness that leaseholders have endured at the hands of their freeholders???
Why does any offer, I make to my freeholder during the lease extension process have to be fair, yet my freeholders counter offer is not governed by the same rules…where is the fairness?
My freeholder was exceptional unreasonable during the leasehold process, whereby he did not 100% win any part of our differences e.g. the premium, his unreasonable solicitors costs or his unreasonable Surveyors fee (desk top valuation), YET, I incurred the cost of the tribunal and Solicitors cost for the preparation of the bundles….where is the fairness to leaseholders?
My freeholder breached various directions set by the leasehold tribunal..yet, he was NOT penalised for his failures! Yet, if I had breached the tribunal, my case could have been thrown out by the tribunal.
The decision made by the judge did not reflect matters at the tribunal e.g. it was claimed that both parties Surveyors agreed that the ground rent doubles, YET the freeholders surveyor did NOT attend and the head Surveyor on the judges panel disagreed with my freeholders claim….but all matters that were objected to were heavily weighted in the freeholders favour! Where is the fairness in even the TRIBUNAL SYSTEM, that is suppose to promote fairness?
I would also like point out, that if my freeholder breaches a leasehold contract & is missing, a leaseholder endures the cost of bothering a private investigator, solicitor and have to apply to the Courts, eherebymy freeholders interests are protected(at a leaseholders expense)….yet, if a leaseholder breaks a term or condition in a lease, a leaseholder can result in forfeiture! Where is the fairness?
Leaseholders, have been treated horrendously unfair by freeholders for years…and I have absolutely no recollection of ever dealing with a freeholder that have not taken full advantage of their advantageous position, which has bern fully supported by the current legal system…and it’s about time this unjust and unfair system undergoes massive reform.
However, i’m sooo sorry (pure sarcasm), that you don’t think 10 x ground rent is not fair on freeholders, but reform is coming & I CANT WAIT!!
In relation to your apparent concern for previous vendors not taking advantage of purchasing a share of the freehold or commonhold and future vendors/leaseholders taking advantage of the change in legislation, I think it is fair to say thats life…unfortunately no one can anticipate future legislation and I have no hard feeling towards anyone that purchased a share of the freehold/commonhold after I disposed/sold the property & I wish them the best of luck!! I cannot see the point to your argument if how how a previous vendor feel about a current vendor obtaining a share of freehold or commonhold!!
However, by claiming that those people who support Justin Madders “. as looking foolish…”
so, why was the same method of calculation ACCEPTED BY NORTHERN IRELAND AND SCOTLAND!!!
By also claiming, that anyone that supports Justin Madders method of calculating the cost of a freehold ” …as looking foolish…”, you are clearly implying that you somehow think that your clever/intelligent, so why don’t you put your money where your mouth is & source a fair and just transparent method of calculating an alternative method of purchasing the costs of freehold (as, James Wyatt Head Surveyor who completed extensive research over a considerable number of years into the calculation of marriage values in the lease extension process AND despite proving that the current method of calculation was floored and PATHENIA is far more accurate,
such method of calculation was rejected by the courts )…..OR alternatively, I would strongly suggest you withdraw such comments.
REMEMBER,
that EVERYONE has a right to a express an opinion or debate matters on this website, although you have no right to be personal or personally attacked someone as being foolish as a result of their opinions, but I shall remain dignified and NOT stoop to your level….although, I’m guessing your a freeholder, amongst other things!
So James Wyatt who spent years perfecting a mathematical model to calculate relativity did not conclude that 10yp was the answer !
Your argument that 10 yp is an acceptable basis of valuation is supported because of the wrongs of others.
I believe that a valuation model based on several thousands of decided cases since the 1993 Act can be turned into an algorithm so valuations can be found quickly and fairly . Substantial cost savings could be achieved in the legal and valuation fees that would benefit lessees.
Lessees being able to reject having to buy non particaping lessees share would also help matters for lessees.
My fundamental objection to Madders Bill is that 10yp has no published methodology explaining how it is calculated . No mention whatsoever is made of valuing the reversion
10 yp is a throw back to capitalising very very small rents back at a time when interest rates were very high indeed .
If a lessee had 3 yrs remaining on a lease in Mayfair where the rent was £20 per annum and the flat was worth £4 million if it had a long lease – the lessee would get a statutory lease extension for £60 and not £3.5 million (Madders proposes the formula is yrs remaining x rent subject to a maximum of 10 yrs)
It does seem likely that landlords costs would be either borne by the landlord or capped and the abuse you suffered would not arise – indeed recent changes would give the Tribunal powers to award costs to you
The compensation formula of the 1993 Act took into account the human rights of the freeholder to adequate compensation and if several thousand of decided cases have been calculated under that formula then what is needed now is an algorithm to be derived using that data..
Justin Madders Bill in essence is a bill designed to bring around debate – I do not think for one moment it is a serious intention to make 10yp the model – to that extent it has succeeded
Stephen, James Wyatts (Cambridge graduate with a number e of economics degrees who worked alongside various professors, researching property prices & sourcing alternative method of calculation on lease extension (otherwise referred to as Pathenia) was NOT as simple as you appear to think as such property data was not/is not readily available, so this was why Parthenia involved extensive research and refinements to mathematical calculations and involved substantial time and money….and proved the existing method of calculation contained floors and Pathenia was better than the existing method of calculation – YET was rejected. However if you think that your somehow able to create a fairer and just form of freehold calculation AND IT IS THAT EASY, then please feel free to source a solution.
Unfortunately, you are wrong in your examples as existing leases are contracts and the government stated it cannot intervene or over turn an existing contract, therefore I challenge you to find a property in Mayfair with an existing ground rent of £10, otherwise your argument is pointless!
Madders bill is obviously designed to bring forward opinions, debate and highlight such massive injustices, so that new laws can be created…such as 10 x ground rent in Northern Ireland and Scotland!
The freeholder has had probably 80 plus years collecting ground rents, why does he deserve further substantial compensation for a lease extension ?
So what happens now? Is that the end of the Bill?
It is a dead parrot.
Not clear to me why anyone thinks it will fly?
If HMG wanted reform of leasehold, it could first insist on sales being honest: e.g. Flat Lease For Sale.
Nobody is selling property ownership in this caper.
Then enact the financial protections already in the 2002 act that were never implemented.
Two simple easy reforms to show good faith?
Yet like the above dead parrot, just two more corpses.
Watching the commons proceedings yesterday, Mr Madders bill was fifth on the order paper. 4 other bills were debated at length. Then a longwinded charade went on where about 20 bills were rescheduled, most including Madders for 23 Nov. Not sure if he will then be first up.
Is there anything in this bill relating to leasehold flats, or could it be better described as ‘The Jo Darbyshire relief bill’?
To answer my own questions above. It would seem clear that leasehold flats as well as leasehold houses are in fact covered by Mr Madders bill under the provisions of ‘The leasehold reform, housing and urban development act 1993’. referred to in the bill.
It follows that in no way could the bill be alternatively described in the terms of my question above.
Totally out of order. Unreserved apologies to Mrs Darbyshire and anyone else who may have been aggrieved or misled by my post.
The root of this 10yp goes back to a time some decades ago where very small rents were discounted at 10% when interest rates were much higher than they are now .. the collection costs of collecting a couple of pounds having a significant effect on the value of rent charges
Interestingly the formula for capitalising rent charges uses a discount rate which is regularly reviewed . This would see rents capitalised at around 2.5% ie 40 yp
Stephen, you make much of Freeholder losses should legislation be brought in allowing for freehold purchase at 10x ground rent.. But surely that would only apply to future earnings? If an offshore ground rent speculator purchased a freehold for £4,000 and immediately revalues it at £35,000 would it be fairer to compensate them on the basis of the £4,000 they paid or the £35,000 they valued it at?
It should be remembered that should freeholds be sold off the former freeholders can still invest their money in other ways?
You talk about the roots of the problem?
When ground rent changed from basically being a legal means to clarify ownership and became a complex method of wealth creation the seeds of destruction were sown.
How can it be that a leaseholder can get a 25 year mortgage for a lease that may only be for 90 years and yet an offshore ground rent speculator can be granted a mortgage over a period of 65 years?
How can it be that an offshore ground rent speculator can base a valuation over a 150 year term?
And let us not ignore the power the freeholder has to exploit the leaseholder be it by excessive insurance commissions appointing themselves as managing agents and imposing.sky high unjustified administration charges.?
Very valid points raised, which I absolutely applaud you on!
Some of these valuations of freeholds have similarities to the banks 10 years ago, when they grossly over valued their assets, and understated their non performing loans. The big accountancy firms were complicit in this.
Consumer protection is low down on the list for this government and that includes protecting homeowners from poorly built homes, rip off services charges and rip off ground rents.
Rather a case of protecting the property rights and vested interests of the few ( Stephen, the landed gentry,Tchenguiz, Will Astor, many property lawyers and MPs, pension funds ,developers, property party donors,housing associations etc ).
The long list of snouts in the trough will ensure that the Madders bill fails but at least the attempt keeps the fleecehold issue in the news.
We know the Conservative party does not back change but does the Labour party ?
What is wrong is that a lease is entered into and a ground rent set out and a date in which the property shall be returned
If a lessee later on wants to renegotiate the terms the 1993 Act gives rights to do so on the basis that fair compensation is paid
Madders bill seeks to give a cop out to those who on the one hand accept the terms and then once having moved in cry it’s all unfair and feel that a token sum should be offered to unwind the deal – behaving like spineless individuals
Rather like going into a restaurant looking at the menu ordering steak and then when it comes to settle the bill saying that you have turned vegan just after consuming the last mouthful and offer only to pay for the potatoes provided they were not cooked in animal fat
The unfairness of madders proposal is justified on the basis that some freeholders have behaved badly and this is somehow payback time
The law commission make it patently clear that they have to walk a fine line between delivering what the government wants and the Hunan rights for adequate and fair compensation of those who will be deprived of their asset. Madders bill fails spectacularly on the matter of compensation for the loss of the reversion by offering nothing. It seeks only to deal with the compensation of ithe loss of rent.
Running away from providing any research to support he proposal undermines the campaign for change
Stephen, ground rents were used as a token payment in the past to show the contract was leasehold rather than freehold. As Michael Epstein says, the leaseholders pay to maintain the building through a service charge, and keep their flats in good order. The freeholder often does nothing, just collects the ground rents. The building along with the freehold to it would be worth very much less in our case if all the leaseholders abandoned their flats. It would fall into disrepair, or the freeholder would have to pay a fair sum to maintain or redevelop it. Many buildings in the south of Italy have been abandoned, because the local mafia were making extortionate demands, and people just gave up and left. English leasehold is heading the same way, the demands are too great for too many people. Ground rents have now been used by a select few as a means to abuse captive leaseholders.
For many leaseholders and those with so called fleecehold contracts, it is more like going into the restaurant, not being able to see the hygiene certificate, being given horsemeat instead of beef, suffering food poisoning, and then not being able to get recompense.
Everywhere else has abandoned leasehold, you seem to be on the wrong side of progress, and natural justice.
Stephen
I think your blurring the lines between leasehold & freehold. A lease is a contract, which is subject to contract law. The freehold does not form part of a leasehold contract…and is not governed by contract law. Although, some property owners are protected by The Human Rights Act, which states a property owner needs to be compensated for their loss.
Hence, the problem with many freeholders is that when it suits them they own the property (and the purchaser simply owns a lease), YET when it does NOT suit a freeholder they do not own a property and expect a leaseholder to bear any major costs!!
However, more importantly this raises great concern for the most important matter under The Human Rights Act of the right to life, which is being breached by freeholders who are endangering the lives of leaseholders whereby similar cladding to that uses at Grenfeld has been used on other properties- which, as we are all aware of has resulted in substantial loss of lives.
Hence, by claiming that Madders is NOT offering compensation and such bill fails spectacularly is factually incorrect, as Madders proposed that Freeholders are compensated 10 x ground rent – as, currently applies in Scotland & Northern Ireland!!
On the issue of “fair” compensation, you have clearly failed to realise that such a term is open to interpretation.
However, if you feel that the method of calculation proposed by Justin Madders does not meet with your approval, your certainly entitled to conduct your own research into an alternative method of calculation.
Whilst on the subject of fairness, especially as your such a strong believer in being fair (pure sarcasm) and the Human Rights Act, when a property owners lease expires, the same rules of compensation to a property owner/leaseholder also needs to apply!
On the statement made about a purchaser enters into a lease/contract and cries later, such a statement is beyond ridiculous….especially when an experienced Estate Agent, Mortgage Broker, Conveyancing Solicitor and New Homes Sales staff have failed to identify the true extent/consequences of what is detailed in a leaseholders contract – let alone matters such as marriage value that are NOT DETAILED IN A LEASE!! If, a leaseholder requires a specialist leasehold Surveyors and lease extension Solicitor to assist with leaseholder enfranchisement or freeholder purchase, I fail to comprehend why you feel a purchaser should be aware of all aspects/consequences of their lease! If, a lease contract & the consequences of such a lease is as so simplistic, why are leaseholders obliged to pay for a freeholders Surveyor, as surely a Freeholder should know what is contained in a lease they assisted in the creation of!!!
However, incase you are unaware, all ground rents are NOT for fixed/defined sums or do not simple increase by a set amount…lots of leases increase by indexes, increases in property value etc…so, therefore such matters are NOT clear or easily definable at the outset & it is NOT possible to define such costs at the outset, despite utilising expert services & are not transparent!
I think it is fair to say that freeholders have taken full advantage of the feudal system introduced years ago & simply do not believe in a fair or just system hiding behind every piece of legislation (including the Human Rights Act), but freeholders days are numbered whereby freeholders and their mortals are hyper ventilating and attempt to gain the moral high ground by raising the issue of faireness!!
No Stephen, Leasehold is rather like going to a restaurant ordering and paying for a steak and then being forced to pay a long term rental for the plate the steak is placed on?
If a lease is for 99 years and the rent £200 a year doubling every 33 years then it is patently clear what is being entered into.
If when there is say 60 years left why should the landlords interest in the reversion be ignored when giving the lessee the right to have 90 years added ? The only arguments advanced on this site is that it was either difficult to understand as it is tied up in legal language . Other arguments are that some freeholders have been unfair to some and that everyone should therefore be let off their obligations.
It is this failure to take responsibly for adhering to the terms of a deal and trying to wriggle out of it with child like remarks about things being unfair is what I have the objection to
Why should the obligation to hand back the property as agreed in the lease be revoked without fair compensation . Madders bill ignores this and nobody can put forward a reasoned calm logical argument why ….because there is not one.
The idea that ground rents were a token sum is again incorrect . The large number of leasehold houses in the North of England sold on ground rents in the 1900’s were often on ground rents of £2 to £4 per annum . About a months wages for a man working in a manual job.
Ground rent is part of the consideration paid for the property and is as the lease makes clear for no service . It is a burden on the property and needs to be considered when making the offer for s property . Arguing that it is all unfair afterwards is so very tiresome execept where the developer has been in league with solicitors to pull the wool over the lessees eyes – there there is a case for just ice and the six year rule should not apply
Stephen
I have great sympathy for your lack of knowledge & wisdom, but you really are an absolute lost cause.
I hope your sense of greed/profits and attitude to risking other peoples live is met by the same reciprocal attitude by others. Karma is a great thing.
YOU ARE THE VERY REASON WHY GREAT LEGISLATIVE REFORM IS NEEDED & BELIEVE ME, IT WILL HAPPEN!
Stephen, in our case the developer / freeholder / managing agent made a handsome profit selling the flats on long leases, 125 years, ground rent £75 pa. He would have got about the same for each flat in the early 2000s as if commonhold was used, because leasehold was not then seen as a toxic asset that it is today. Why then should he be able to come back 40 plus years later and be able to charge several £1000s for a lease extension or freehold share ? He is getting a second bite of the cherry simply because the clock has run down and having done nothing for it, all the maintenance and improvement costs for the building in the meantime are carried by the leaseholders. The building is a converted, listed mill and cannot be knocked down and redeveloped by the freeholder for extra profit. He is getting an undeserved extra windfall simply because the properties were sold leasehold rather than commonhold, and 10X ground rent is more than adequate compensation for his lack of work, and his freehold asset, which the leaseholders have maintained through their service charge, so they have already paid for it !
But the deal wa set ou t in the lease . Much of the increase in the cost of extending a lease has arisen from the collapse in long term interest rates which has benefited both the lessee as the flat has risen in price and the freeholder
The collapse in interest rates was not foreseen and has been responsible for much of the freeholders gain.
Seeking to discount an income at 10% when interest rates are so very low now is inequitable and would of course fall foul of the human rights legislation.
Our flats have lost 20% since 2008, mainly because of toxic leasehold. It is a different world away from London, Stephen. Freehold properties have stayed the same or a small increase.
Stephen,
Among the lexicon of words you consistently use are “equity” and “fair”, and you have referred to the human rights of freeholders more than once – more than ten times I suspect.
Your misuse and abuse of words is quite sickening.,As for your references to the human rights of freeholders, I can’t comment without resorting to the sewer, the place were freeholders belongs as it happens.
There is fighting your corner, and there is debasing oneself. Leasehold is indefensible without debasement.,your own mother will think – as she tucks you in bed at night, what kind of creature have I spawned.
All that is left for someone who has no civilised counter argument is to descend to throwing insults – on that you have excelled
Stephen
Insults? I call them characterisation – don’t come to me for a reference. You are a low life lackey.
Stephen says, “…the root of this 10yp goes back to a time some decades ago where very small ground rents……”
Yes, when historically annual ground rent was a small rent to be paid to the party holding freehold title of the land granted it by the Crown..
Ground rent for flats was always small and designed to afford flat owners the same rights in law as enjoyed by owners of freehold houses. And long leasehold flats in metropolitan areas change hands at par value to houses and not at a discount. .
Indeed it was “…some decades ago…” when a band of unscrupulous individuals swooped like vultures on this unregulated field and, unilaterally inventing new “terms”, feasted themselves, , without so much as a by leave from the Crown.
Thankfully, the Crown servant, HMG, has finally cottoned on to all this,
And 2019 will go down in Land Law history.
Stephen is entitled to his views, I don’t agree with him because leasehold is very unbalanced and unfair, favouring the freeholder over the leaseholder. Most of this is because of a medieval legacy and vested interests, and England and Wales up to now have failed to follow the rest of the world and move on from these feudal practices. The winds of change are blowing, and hopefully, finally within 10 years leaseholders will have a much better deal. There are similarities to 100 years ago, when there was huge demand to improve things for the poor and working class. It took a lot of effort and time to bring about beneficial change, we need to keep the pressure on to reform this rotten system.
I read a book called “Black Diamonds” about Wentworth House in Yorkshire. The Fitzwilliam family owned it and became rich from the coal mining on their land. Manny Shinwell who was part of the Labour government in the late 1940s, ordered open cast mining almost to the walls of the house. The formal gardens were destroyed. I don’t think Stephen is in the same league as the Fitzwilliam family then, and I feel the house and gardens were unnecessarily vandalised as an act of revenge. The house was built on the backs of the working poor, and the Fitzwilliams treated their workers better than other privately operated coal mines. They no longer own the house, it fell into disrepair, and is now owned by a charity trying to restore it. A good idea would be to create 100 leasehold apartments with doubling ground rents, and huge service charges to help pay for the grounds :)-
However change was certainly necessary then to improve the working man’s lot, and leasehold law is it is now is a legacy from that age.
Stephen (a.k.a. Stephen Tchenguiz – the long lost brother) always has to defend this feudal nonsense with the pseudo legal arguments, created for freeholders. Didn’t get far in Scotland this Human Rights nonsense did it?
I am not sure how familiar you are with the workings of the Abolition of Feudal Tenure etc. (Scotland) Act 2000
My reading of the Abolition of Feudal Tenure etc. (Scotland) Act 2000 meant the freeholder would be entitled to compensation to single payment of a size that, when invested at an annual rate of 2.5%, it would yield interest equal to the former feu duty.
As feu duties are very small because of inflation the amounts paid were very small
More importantly as there term was indefinite then the value of the reversion did not have to be considered in the car of feu duties
If the Scottish model were to be adopted ground rents would be capitailsed at circa 50 -55 years purchase ( i.e. 1/ 0.018) as the yield on very long dated non indexed gilts is around 1.8%