Here is an encouraging letter from the owners of a Persimmon leasehold house at Links Crescent, Seascale, in Cumbria.
There is nothing remarkable in Persimmon selling a freehold for around £3,750, which is 25 x annual ground rent of £150.
This is what our spoon-fed plc housebuilders – whose profits have been driven by taxpayer funds via Help To Buy – tell MPs a freehold is worth.
Before they flog it to some offshore private equity speculators who demand ten times as much, that is.
This is a rare example of a leaseholder thanking Communities Secretary James Brokenshire, so the email has novelty value. Included is the local Conservative MP for Copeland Trudy Harrison
Dear Trudy Harrison MP and the Rt. Hon James Brokenshire MP,
On 06 August 2018 we emailed, by way of putting pressure on the then CEO of Persimmon Homes Mr Fairburn to address the issues we had been having in purchasing the freehold on a Persimmon new development in Seascale Cumbria. We also asked Mr Fairburn to look again at the matter of estate service charges.
We have now resolved the freehold issue and write to thank you for your assistance and to tell you of our experience in case it helps you when contributing to future legislation:
As a result of the weight of your names on our email, Persimmon homes, through their Lancashire Managing Director Mr John Roocroft, agreed to revisit their freehold asking price. They reduced their offer of £3750 (£150 ground rent x25) by a few hundred pounds. We cannot name the exact figure as we are told that this is confidential.
A condition of the cheaper asking price was that we accepted standard terms and did not negotiate. Our solicitor was however able to later remove several unattractive elements before execution as a deed.
The issue of MRICS valuations was not addressed. Persimmon appear still to see all valuations, other than their in house x25 ground rent calculation, as improperly calculated – see this excerpt from an email to us dated 11 April 2018:
You are of course free to obtain your own valuation. You would need to appoint a suitably qualified valuer and ask him to send us his reasoned calculation of the rent multiple (based on the statutory formula contained within the Landlord Reform Act 1967). On our review of the valuation, if we are content that it has been properly calculated, we will be happy to transact at the price calculated.
From the time we wrote our email to you Persimmon Homes became much more helpful and significantly quicker in dealing with our queries (in particular the in house legal department became willing to accept calls directly. Before we emailed you we had to contact Customer Services, who then contacted Sales who then contacted the legal team in York).
The biggest money making racket seems to have been our solicitors and chartered surveyors. In both cases these professionals didn’t take the initiative to chase up receipt of documents and were not proactive in resolving, what must be for them, common problems – we had to do all this ourselves: telephoning and emailing, effectively headbutting the matter to a speedy resolution. Yet we still had to pay their professional fees. It would seem to us that this is where most future reforms will need to be focused – a streamlined process with no roadblocks and reduced fees.
We received no satisfactory response regarding ways to reduce or remove ground maintenance costs – the so called ‘fleecehold.’ [Where leaseholders and freeholders are charged a large annual fee for the upkeep of often small areas of shared public space thus making their houses difficult to sell on].
I understand your colleague, Helen Goodman MP, the MP for Bishop Auckland is an advocate for legislation on fees for the upkeep of common spaces (interview given on BBC Look North Sun 02 Dec 2018). I also understand that your colleague, Sue Hayman, the MP for Allerdale has been working with her constituents on issues affecting Persimmon Homes developments – in particular high ground maintenance costs or ‘fleecehold.’ I am sure together you will be formidable in creating good legislation that will resolve this ‘fleecehold’ issue.
When did 25 times Ground Rent become acceptable?
In 1983 I purchased a Leasehold House and purchased the Freehold for 10 times the Ground Rent of £35.00 Per Year paying £350 and it was included in my mortgage.
Over the past 10 to 15 years very Large Building Companies, bought out the 60 Medium Sized builders to become Construction Companies. They then had a monopoly between them and prices rocketed when one large company decided to sell Leasehold Housing and the other followed.
Government has a responsibility not to let this happen but failed and now the Construction Industry mainly New House Buildings are in a mess.
How come we hear very little from the two major organisations in construction, Chartered Institute of Building (CIOB) and Royal Institute of Chartered Surveyors, (RICS)?
In 1983 interest rates were a great deal higher than now so it is to be expected that rents are capitalized far more than 10 YP
With interest rates on saving so pitifully low a lessee is getting a stonking return, if he takes money off deposit i.e in this case £3750 to buy the freehold he will lose interest on the money of around £38 per annum, (ie about 1% per annum) but save £150 in outgoings, I would say the lessee is given a real bargain. The savings are certain so its not a risky investment for him to take on
Do you really think this chartered surveyor smart-arsery is persuasive?
These leasehold houses were bought with taxpayers’ assistance through Help To Buy. The aim was to create home-owners.
plc house builders decided to rip off their own customers – and the rest of us – by dumping them in leasehold houses, not freehold ones. And when they are freehold ones, creating another investment asset class with “fleecehold” management contracts (which local authorities have happily gone along with in order to cut their bills).
The leasehold houses scam is now busted, thanks to our efforts. “Fleecehold” is still on the to-do list.
As for the grisly property “professionals” – solicitors and valuers – they were simply stooges for the developers, performing no useful service for their nominal clients at all.
Of course, this couple should buy this freehold for £3,750. But they should never have been in this position.
Assuming you too are a taxpayer, aren’t you feeling a little queasy contributing to Persimmon’s ex-CEO Jeff Fairburn’s £75 million bonus and Stephen Jenkinson, the current pro tem boss’s £45 million?
Don’t you think our residential property sector could do with a review, before taxpayers hurl yet more billions into developers pockets – to produce a woefully small number of new houses?
The lessee entered into the lease where the lease and other legal matters took some time to review.
They agreed to pay £150 per annum and return the property at the end of the term. The lease makes it clear the rent is for no service at all and is a pure profit stream for the freeholder it is therefore a burden on the property which needs to be considered prior to exchanging contracts . As the lessee is professionally represented we assume these matters are considered . (There are of course abusive cases where solicitor are influenced by the developer but that is in a minority of cases)
The legislation allows a lessee to revoke that deal and in a high functioning commercial economy such as ours adequate compensation should be paid to the owner of that income stream and the holder of the reversion at discount rates commensurate with long term risk free rates of return
I have advocated throughout that the NPV of the rent should be shown next to the premium in Box LR7 in the prescribed clauses of the lease using a discount rate set by the government. Then the lessee can make an informed decision about the rent . If the lessee wants to pay £100k less for the property but pay a ground rent of £3000 linked to the RPI why can this not take place provided it is disclosed clearly in the lease. My proposal would have ensured that 10 year doublers would have only been granted if a significant reduction was made in the premium paid for the lease
Many wish to get out of the obligation to pay ground rent and not hand back the property at the end of the term by pointing at the wrongs of the few.
The level of remuneration paid to the various CEO is the result of the government trying to prop up an over inflated property market and nothing to do with the creation of, by comparison, of very small ground rent streams. Yet to fuel the arguments over leasehold reform they are brought into the argument. The remuneration is excessive but is not the result of selling homes leasehold as opposed to freehold
The near hysteria over ground rents has backfired in that lessees with ground rents linked to the RPi which is reviewed every ten years will not now be able to remortgage with some lenders who insist that the review must not be more frequent than every 21 years
A Ford Mondea has a RFL of some £275 and sales of this car at some £23k are not in anyway troubled by such a tax. However because of the near hysteria over ground rents a £275 ground rent on a £250k flat reviewed every 10 years is regarded as a problem by some lenders. All employees would expect the salary to rise regularly during times of inflation and lenders expect to raise interest rates sometime many times in a year but for some reason a ground rent reviewed every 10 years is far too often and makes a property un mortgageable
Ms Darbyshire posts an article where she calculates that a ground rent linked to the RPI will in 250 years time amount to several million pounds a year.https://www.leaseholdknowledge.com/taylor-wimpeys-snake-oil-ground-rent-review-scheme-makes-toxic-leases-even-worse
The maths is of course correct but inflation at that levels would only be possible if incomes were rising at the same rate . There could be no demand for goods and services and therefore no prices rises unless purchasers has resources to meet those prices at that level therefore incomes have to rise as well by the same sort of magnitude
So if indeed your ground rent became £25million because of inflation then your earning would be several billion a year. This is an example of near hysteria that has suddenly appeared and is effecting the decision of mortgages which of course has a profound effect on house prices and lessees with not unreasonable ground rents
The vast majority of lessees pay modest ground rents with modest review provisions . If the management of their block is unacceptable they have the right to form an RTM and manage the building themselves. There is a legal route to challenge service charges in a low cost regime
There are improvements needed . The legal and valuation fees in an enfranchisement or lease extension can run into many thousands and perhaps a landlord who has acquired his interest after 1993 should bear more if not all these costs himself . He knew of the risk of enfranchisement or a lease extension and this may well have been reflected in the price paid
Giving lessees the right to enfranchise with the landlord taking an overriding lease over the non participators should be an option available to both sides
Prescribing discount and deferment rates with set percentages for relativity with an on line calculator should make the calculation a great deal easier
The professional fees which a lessee has to pay in a statutory case do seem very high and I am sure a proposal can be made to ensure the lessee saves significantly on those fees whilst the landlord receive correct compensation
Well said Stephen – it’s refreshing to hear some common sense for a change. In the hysteria that’s been (justifiably) created by the 10 year doublers it’s been entirely overlooked that for the large majority of leaseholders the system works perfectly well.
What does need to be changed, though, is the absurdly complex procedure that people who own leasehold houses with low ground rents have to go through to acquire therior freehold. I’ve dealt with many such cases against freeholders who refuse to sell the freehold on a house paying, say, £10 or £25 a year ground rent.
Although we will finally obtain an order for sale at just a few hundred pounds the amount of work to obtain an order is grossly disproportionate, and unbelievably involves a state paid chartered surveyor – sometimes more than one – having to schlepp out to inspect a bog standard house miles from where the surveyor’s based, just to come up with a solemn pronouncement that the freehold is worth £250.
The cost of the Tribunal hearing must be thousands of pounds, all paid for by the taxpayer and of no benefit to anyone except the solicitors and surveyors involved.
This is completely ridiculous. There should be a fixed multiplier for any ground rent under, say, £250 a year with fixed fees payable for the conveyancing and no facility for the freeholder to insert covenants in the transfer. The actual conveyancing process is simplicity itself, and I suspect many people would be quite capable of handling it without a solicitor.
The rent should be capitalised using a defined discount rate and if the term is over a certain number of years then unless it is in the very highest of council tax bandings then the reversion is valued at nil
The intention being to relegate very long lease with small rents to a desk top calculation . The Transfer form (a defined document )to be executed by rhe landlord within a defined period . The application to register the transfer is very simple
If the landlord believes that covenants are necessary to ensure compliance with an estate then he should register the estate management scheme – and if approved then the transfer form to include the obligation to pay for estate charges
On shorter term leases the value of the flat will need to be derivied and I feel that where the term is no less than 70 years and if the property falls into all but the last two council tax bandings it should not be too difficult to have a defined table Local Authority by Local Authority giving the average value of a property per council tax banding
If either party objects they have the right to challenge but face the risks of an order of costs
This would deliver significant cost saving to lessees (a stated objective of the Governments proposal) but also respect the need to pay fair compensation to the freeholder. (Another stated objective from the government )
I recently saw a case where a purpose built flat in SE London having 81 yrs remaining on a modest ground rent of £125 stair casing every 33 yrs was subject to a statutory claim for extentsion. The flat was worth £250k and was easy to value as it was on an estate of many similar properties
The lessees own solicitors and valuers racked up almost £3000 in fees including VAT and the landlords costs were £1800. £4800 in total . The premium was £7100. The lessees own solicitor and valuer behaved badly by initially offering £2500 and he landlord behaved equally badly by counter offering at £15000
It took nearly. Six months with application being made to the FTT which was settle d the day before