Actually, within the last hour … the first two of these predictions have come true
Tomorrow sees the government launch its consultation into ground rents.
We already know that they have made a fundamental move away from the principle of a peppercorn ground rent to one of a ‘nominal’ ground rent. This will allow the sector to continue promoting all the bad practices which the government has done nothing to stop, for example: protection of leaseholder funds; insurance commisions; ridiculously overpriced long-term agreements in the social sector.
LKP makes the following three predictions:
1) The government will have been utterly bamboozled into backing down on limiting ground rents in the retirement sector, which everyone knows is the most vulnerable part of the market where government has failed many times before:
- The Law Commision concluded it would be absolutely fine for people to pay 30% exit fees, as long as things were clearly explained.
- The CMA decided leaseholders would easily be up to the job of taking FirstPort to court on the collusive tendering issue, despite the fact that nobody ever managed to do it.
- The OFT found that exit fees, although likley to be an unfair term, would be better addressed by doing a deal with the retirment freehold investors, leaving the pensioners to take legal action, which they found too difficult.
The government seems to think that the most vulnerable purchasers should be given the greatest opportunity to make a bad decision.
2) That the govenment will continue to offer empty words to the existing leasehold house owners burdened with their Help to Buy onerous lease terms.
3) The govenment will continue to pretend that the Law Commission has been tasked with helping existing leasehold house owners. They will do this despite being fully aware that the Law Commision has already made a submission to the MHCLG Select Committee to say that the remit provided to them limits what they can review. They have not been tasked with reviewing these or any other potentially unfair terms.
In case anyone thinks we might be cheating and have been sent an embargoed copy of the consultation be assured we have not.
Related posts:
DCLG stakeholders hear of ‘calamitous’ Law Commission report on exit fees
Housing minister urges transparency over retirement exit fees
McCarthy and Stone: Ground rents are not the future of retirement housing
Spire View, in Pickering, shows a commonhold future with no leases at all, says Sunday Times
Leasehold houses to be banned and future ground rents set to zero, announces Sajid Javid
LKP is the glimmer of hope.
It looks as if progress on genuine reform is going to take a lifetime.
It has already been a lifetime to many elderly leaseholders.
I commented long ago that the quickest way to solve the problem would be a mass non payment of unfair charges of any type.
Not advisable and illegal but morally correct and effective.
Restrict it just to one of the worst rogue landlords/freeholders and test the results.
Would this Government allow Elderly Pensioners and young families to be thrown out of their homes. I suspect not.
Michael,
Non payments will unfortunately lead to individual leaseholders being picked off one by one.
So I suggest payments continue to be made, but instead of paying on line to the freeholder’s agent leaseholders make cheques payable direct to the freeholder and send them not to the agents address but to the freeholder’s address (even if that is in the BVI.?)
I’m puzzled into why the government has still not done the right thing. Procrastinating is some thing that I’m so used to now – I am not sure why things are still the same ie ground tents – developers ignored the residents who bought their properties and then sold the RTM to so-called third parties – CountrySide Developments are one of them companies; I hate that company so much – treating genuine retiring buyers like cannon fodder. Service Chargers we pay costs £1.05million – ground rents set to double in 5 years – sorry to be a Lessee.
John, the reason why this government appears to have chosen not to do the right thing, despite 6,000 submissions, is that this government is “in bed” with the big monolithic Developers, who literally control the building of houses, and the Residential Property Management Industry. It’s as simple as that. The Developers and the Agents have their lobbyists. The Developers want their riches. The Agents want their jobs! I’m afraid this government is not going to do “the right thing” of its own accord.
Funnily enough, Firstport admit to price fixing their residents and are thought to have gained up to £1.,400,000 from their price fixing.
They offer a “goodwill gesture of around £100,000 in compensation?
And that is clearly good enough for ARMA, who were perfectly content to admit Firstport to ARMA?
The problem that limited any scope for change was identified by the law commission from the start as being that of the human rights of the freeholder. If an asset is to be taken away from someone they are entitled to adequate compensation.
The 1993 Act had to consider then the human rights of the freeholder and in the 25 years since then thousands of cases have been settled using the 1993 formula. Lessees and freeholders have done over the last 25 years deals in the light of that formula and therefore the principals of that valuation should be upheld as it was reflected in the pricing of property transaction. That does not mean that there is scope to help lessees
For example, many valuations could be calculated using an online calculator. After several thousands of decided cases an algorithm can be produced which would save lessees significant sum and yet not take away value from the freeholder. Properties in the highest council tax bandings and in Prime London to be dealt with on a case by case basis. But for many modest flats outside of London on leases with say 65 years plus with simple ground rent terms there really is no excuse for a ritual dance with two surveyors knock up £3,000 plus in fees and solicitors about the same for their input.
Limiting the legal costs or indeed making the landlord bear his own costs would seem reasonable particularly where the freeholder bought his interest post 1993 when the chances of compulsory lease extensions or enfranchisement was a possibility. May not be equitable for acquisitions made prior to 1993.
The imposition of a ground rent where the Net Present Value of the rent is shown next to the premium using a prescribed discount rate to value that income is not unreasonable. The buyer pays less for the flat in return for paying a rent – a wholly reasonable proposition as long as it is crystal clear.
Exit fees – I do find the uproar confusing. If the exit fee on a retirement block is made patently clear before the lessee takes on the lease then the lessee can factor that into their offer for the property. Then when it comes for the lessee or their executors to sell the property many years later why is it deemed that the exit fee is somewhat unfair. Some blocks use the exit fees to subsidise the service charges and in many ways there is a compelling argument for the collection of a lump sum when the lessee moves on
The problem is that people often do not pay less because there is a ground rent they sometimes pay more. Economically this is entirely illogical but that the way the market works.
In terms of exit fees there is a county mile between those legitimately created to help fund the maintainance of the building and the actuarial gamble implicit in many of these agreements.
The sad truth is those buying into the retirement market are not having some benifit while they are alive that is then paid for by their relatives many years later. Some systems impose a 30% fee so long as you live for just 3 years.
The problem is that even if you live too long the landlord still wins. If not enough is being collected because too many people live to long they simply demand a variation to the leases to increase the collection rate.
Martin,
Clive Fenton former CEO McCarthy & Stone that ground rental income was used to offset the costs of communal areas.
Since a house manager’s flat is treated for service charge purposes as a communal area, should those living at Firstport managed McCarthy & Stone developments that have had the house manager’s flat leaseholds sold by Firstport receive a rebate on their ground rent?
Whilst I can understand the reasoning behind exit fee contributions(though I profoundly disagree with it) being paid to development service charge accounts) I wonder if you might speculate as to where the exit fee for the Firstport managed Hillside Court, Ormskirk would have ended up if LKP had not stepped in?
Stephen, nobody is arguing against an exit fee based on a contingency / sinking fund contribution toward the financial strength of those accounts. However, when another identical fee is levied for no service and as a financial reward to the freeholder this is wrong.
The freeholder has ample opportunity to monetise his investment through lease extensions or purchases of the freehold (although not in retirement developments) at extremely high ground rent values. And that is not including all the improper monetary arrangements with insurance commissions and management companies kickbacks………The freeholder has his costs for administration covered during a sale of the lease also. Or should it be in your world that this should be a profitable opportunity too?
The exit contingency fee varies wildly from similar developed properties. 1% on some to 15%!
The fact is the law is weighted in favour of the freeholder and that HAS to change.
If the lease is structured so the freeholder gets 30% of the sale price as an exit fee I see nothing wrong in that. PROVIDED that it is made crystal clear to the lessee when the lease is granted
The lessee then has to take advice on this point and base an offer for the property with that burden in mind.
If these burdens are not considered by lessees then it is the failure of the lessee’s professional advsiors and if they can not be trusted to do this then the government needs to make the disclosure of such terms, perhaps, in the prescribed clauses of the lease so there is no excuse whatsoever for any professional advisor missing these important points
Stephen,
Much of the problem we have with the doubling leases stems from the failure to disclose correctly and more importantly developers looking to make extra short-term incomes.
The supply side of the system may assert they do make all relevant disclosures but there are just too many people saying otherwise for anyone to believe this even remotely plausible.
In the retirement sector, they also assert that things are made crystal clear but too often purchases are being made after a major illness or death of a partner where the consumer is massively vulnerable. The Law Commision secret shopper test showed there is some distance between what the retirement provides say happens by the book and the way in which their sales staff operate that book in the real world.
Maybe part of the behavior by the developers is driven by their awareness of the limited application of unfair terms legislation to property transactions?
Stephen, Using any formula you may wish to use, how does a purchase of a freehold get to be valued at £5,000 and yet within months of being sold to an offshore investor end up being valued at £40,000? How does an “exit fee” destined to be a contribution to service charge costs end up being paid over to the freeholder instead as was the case with Hillside Court, Ormskirk?
So the government now realises leases are contracts? Did Honourable Sirs not notice this when lamenting loudly how feudal, broken and unfair leasehold was (blah blah etc) and promising to reform it?
An unfair one-sided contract is still a reform need, no? The sector is so broken and one-sided that governments would have to cut an awful lot off the slime-coated trough before any human rights could be damaged.
Or is it a human right to – in the government’s words, rip off home buying citizens and have them blamed for not noticing the ‘ownership’ deal stinks?
Where does that logic apply elsewhere else?
We seem to have reached a point where the government has by all its recent years’ announcements destroyed the values of existing leases and yet seem intent to do little to fix the problem? Nice work.
On the other hand, of the millions of leaseholders affected, how many agitate for change? How many leaseholds have sold since the government last described it as a broken, feudal market?
The unwritten rule of supply and demand economics: fools and their money deserve to be parted.
I doubt they will get another six thousand responses and will possibly take this to show folks have lost interest. I have nothing new to respond anyway.
The Select Committee Meeting today at Westminster showed nearly all the 50 leaseholders present wished to abolish leasehold law. Some terrible abuses by some freeholders were highlighted. Get rid of this medieval law, start again from the ground up, and build something fit for the 21st century. Maybe the Conservatives are hoping only to tinker with it and hope the anger dissipates, or people will give up. If so they are very mistaken, because the winds of change are blowing on this and many other issues. They are making a dogs dinner of Brexit. A more radical government will do what has to be done, probably within the next ten years. I don’t think leasehold will exist in anything like it’s present form by 2030
The will to abolish leasehold in England and Wales must increase, it is people’s freedom and choices that are being suppressed by the current laws.
‘Interesting’ article and comments at http://www.lawgazette.co.uk under news. “Solicitor targets dozens of law firms seeking leasehold compensation”
From George Monbiot, today’s Guardian –
“Today, the notion of public service seems as quaint as a local post office. We expect those who govern us to grab what they can, permitting predatory banks and corporations to fleece the public realm, then collect their reward in the form of lucrative directorships”.
He also talks of political parties (obviously The Conservatives) being financed by commerce and business, then serving their interests.
It is not just leasehold, boys and girls, it is right across the board. LKP, shame the devil and say it as it is- that government is part and parcel of the conspiracy against leaseholders. They have not been “bamboozled” by anyone, they are willing participants in the crimes against ordinary home owners.
You will be in the naughty chair again if you do say it as it is, hell you only live once. Go for it.
..
David,
Political parties including the Labour and Conservatives are now being financed by commerce and business, which is self serving..
It is not just leasehold, for the retirement sector it now includes the house leaseholders who are seen as Cash Cows.
The present government is part and parcel of the conspiracy against leaseholders flats/house. They do use the legal terms and other means to prevent any real changes just piecemeal tinkering, they are willing participants in the crimes against Retirement Developments going back to the early 1990 under the McCarthy & Stone banner who were guilty of over pricing and excessive Service Charges.
Chas,
George Monbiot suggested that government is universally corrupt (quelle surprise), favouring commerce and business (read, in this instance, the entire leasehold industry) to the detriment of the common man..
Both you and I concur with George. At what point does LKP and their band of parliamentarians express the same sentiments, or would that be counter productive?
I have always been deeply suspicious of ALL MP’s, they have after all negotiated the hurdles and jumps to reach parliament, and be accepted therein…
What amazes me is tat they are going after small landlords and taxing them to oblivion, but freeholders can still be shady and untouchable. Why not make it transparent who owns what on freeholds? Sherlock Holmes would have a hard time as things are.
Find them and tax them properly. They should contribute, not just fleece leaseholders and share the spoils with agents. Why are they not taxed properly? It’s not as if they can leave the country and take their freeholds with them! Conservatives often claim that higher taxation means wealthy entrepreneurs leave the country taking jobs with them. Freeholds is one sector where is impossible to do that,
We had consultations coming out of our ears, and still no proper regulation for those rogue managing agents.