The Daily Mail today brings to light a scandal of current housebuilding: the building of free-standing leasehold houses.
This is in preference to freehold, which is the form of tenure that these houses would normally be.
The newspaper highlights London Road in Peterborough where Persimmon is building three bedroom houses and selling them as leasehold for around £170,000.
Opposite, on the west side of the road, Barratt is also building houses but selling them as freehold for around the same price.
It is extraordinary that buyers are falling for this example of housebuilder opportunism : a leasehold property, unique to England and Wales, is a tenancy.
It is a form of tenure to be avoided if at all possible.
This means that the leasehold buyers will pay ground rents, require paid permission for home improvements such as conservatories and doubtless pay a service charge for the upkeep of common parts.
Oh, and every passing year their property will erode in value as the lease reduces.
There is no justification at all for housebuilders to build houses with leasehold tenure. It is simply playing the system and exploiting the ignorance of buyers.
If these buyers have used solicitors recommended from a panel by Persimmon, then there is a question of their professional impartiality.
Paula Higgins, chief executive of the HomeOwners Alliance consumer group, contacted LKP before the publication of this article.
We were unaware that large housebuilders were adopting this practice, but it makes perfect sense given the housing crisis.
Miss Higgins is quoted in the Mail saying: ‘There is no justification for having new-build houses as leasehold.
“It is just a way for developers to make money from people who think they own their own home. It is an outrageous practice. I suspect that often buyers have no idea what they’re signing up to.”
The advantages to a housebuilder of building a scheme with leasehold tenure is obvious.
It sells the houses for almost exactly the same as competitors selling freehold houses, and then it flogs off the lucrative freehold.
The Mail says figures from property firm Savills show that over the past five years investors have piled £1.2 billion into residential properties which have a ground rent.
The money from these ground rents is viewed as a steady stream of income at a time when interest rates are low. The investment company can then resell the freehold to another buyer.
A report from property consultants CBRE says: ‘House-builders have become more aware of the benefits of structuring leases in an attractive manner to increase the value of their holdings and seek to maximise sale receipts on disposal.’
Two years after moving in, leaseholders have the opportunity to buy the freehold of their home. How much it costs depends on the value of the home, the ground rent and the years on the lease.
It costs roughly £4,150 to buy the freehold of a £250,000 house, with a ground rent of £250 a year and 995 years left on the lease, according to figures from chartered surveyors Andrew Pridell Associates.
Legal fees may add £3,000 to this bill. For families on a budget, spending more than £7,000 to own outright will simply be unaffordable.
Persimmon said only around a third of its houses built over the past three years are leasehold.
LKP has contacted Persimmon for comment.
I don’t like Leasehold, but in the case of a flat I understand it. I even understand a leasehold on common landscaped development grounds where the actual houses are freeholds
There is no justification for what Persimmon are doing with leaseholds.
It is nothing more than a naked attempt to monetise their developments to their complete financial advantage over their customers.
It is a scandal, of such proportions as to be big enough in scale to bring down the company?
Given the choice between a freehold and leasehold.development who in their right mind would ever choose leasehold?
Questions will now be asked as to what else Persimmon have been up to, if they can behave in this totally unacceptable manner?
Those wishing to buy a leasehold Persimmon house should be warned, that they are about to make a very costly mistake.
To make matters even worse, since you would be the leaseholder and not the freeholder (ie you don’t own the property) you can forget the NHBC guarantee. That is between the owner and the builder. I can’t see Persimmon making a claim against themselves, especially when any repairs can be added to the service charges.
You are not correct on the NHBC bit Michael. The leaseholder will get full 10 year cover and can amake a claim direct to the NHBC.
I would agree with you entirely this is a complete and utter scam and Persimmon should be exposed in the press. Surely no solicitor worth their salt would advise someone to buy leasehold when a freehold house is avaialbe over the road? But when the freehold homes are sold it is Hobson’s choice if you want to live in that location.
Persimmon is relying on the ignorance of purchasers and no doubt they will sell these houses with the misleading statement that “999 years is as good as freehold”. It ain’t!
Since a leaseholder only “owns” the right to occupy a home for a defined amount of time, i don’t see how they could claim against the NHBC? They may well have a claim against the freeholder (who in turn could claim against the NHBC)
In this case the freeholder would be Persimmon who would in effect be asking the NHBC to rule that Persimmon must rectify defects?
I remember the torture Fleeced went through when trying to make a claim to the NHBC.
Michael I remember the beginning of the NHBC in the late 1960s and they were providing a Warranty not a Guarantee.
As a Building Control Officer and Clerk of Works from the 1980s I am aware of the poor response from the NHBC.
I surveyed a NHBC house in 2006 in Essex, this was a brand new house which had moved in different directions and the new owners moved in and out within a month.due to the defects found.
My role was to survey the repairs which were obviously not visible to the untrained eye. There was a major problem that the mortar used originally had a incorrect mortar mix and the mortar joints were sandy and would allow water to penetrate and be absorbed in to the bricks.
I informed my boss who informed me we were only interested in the repair undertaken which was Certified by the Under-Pinning Company.
I checked previous plans for the development which showed a small stream had been built over.?
The NHBC are the Private Sector Approved Inspectors and are supposed to work to the same standards as the Local Building Control?
Michael it is the owner of the home (whether leasehold or freehold) that has the warranty arrangement with the NHBC. The landlord does not have a warranty.
i accept fully that the NHBC warranty is, in many cases, not worth the paper it is written on. There are many cases where the NHBC has been found wanting in terms of site supervison and management of a claim. I was just explaining you were incorrect in your original comment, not justifying the NHBC warranty!!
That’s what i love about these sites. When a genuine mistake is made, a wiser person is ready to correct it. Thanks, Insider.
I find it hard to believe that nobody in the housing circles new anything about this practice.
as I for one, have been shouting from the hill tops about it for a while now on deaf ears.
The ground rent is just the sweetener for the developers and their investors, what about:
Insurance premiums that will/may be payable.
Annual fees for a management company (usually owned by the landlord!) to ‘manage’ the site.
Fees when wishing to sell on, which will be payable to the landlords and their managing agents.
Statement of accounts will have to be requested by solicitors when you want to sell to prove you have paid your management fees and ground rent. If you happen to be in the middle of a dispute with your landlord for whatever reason god help you because nobody else will.
Example: you refused to pay a fee to replace your leaking windows! you will be held to ransom until you pay them, meaning you will not be able to sell your property. These statements can cost anywhere in the region of £300 plus vat when issued. So if you get a buyer and it all goes pear shaped before completion and you have to start again, you would have to request a fresh statement… Another circa £300… Ouch.
Then there is the small matter of paying for permission to improve your own property: new garage: new doors: new windows: new conservatory etc… etc… approval needed…
What happens if you split from a partner and you want to take their name off the lease.? Yes, you guessed it… approval fees again for the landlords consent.
And if you remortgage for a better deal in a few years’ time? ooops, yes more fees to the landlord for his approval again.
Want to put a tenant in your newly bought leasehold property? Approval fees again for consent and every time you get a new tenant!
Who owns the parking? This a point most people totally overseas. Do they even have a right to park a vehicle/caravan/commercial on their street?
Do leaseholders even have a right to park a vehicle/caravan/commercial on their street?
Demands for money for road infrastructure improvements, broken pavements, gardening contractors, lighting in communal areas! I could go on and on…
Are there any commercial premises on this particular site? Shops, restaurant’s, schools…?
If the answer is yes and it is more than 25% that will mean no chance of a right to manage ever.
Is there mention of a Resident Management Company in the lease?
BUT the real jewel in the crown for the landlord is the non eligibility for a Right To Manage Company
As RTM only applies to blocks of flats, owners of leasehold or freehold houses or
Bungalows cannot exercise this right and are therefore unable to participate in RTM on
‘Mixed estates’ which consist of flats and houses. Unquote”
I can see a whole load of solicitor’s being sued here…..
These developments are being sold as a once in a lifetime opportunity for our families and they are government backed and funded.
It is also not unusual for councils to be in on this arrangement by agreeing to a 250 year lease with the developers… I am not saying councils are turning a blind eye to it all BUT….
I think an investigation should be called for by writing to the government and demanding to know how many developments have been sold off like this over the last 15 years and how many more are planned for the future.
We have a duty of care to protect our youngsters from this type of property purchase and I would urge everyone that reads this article to Share on Facebook/Twitter etc… whatever it takes to get our voices heard. Write to your MP’s and let them know what is happening and demand they look into it.
and I spell checked it…!
I would like to take this opportunity to thank Karen for taking the time and effort in writing such a very informative, and true, article.
Since this version of leasehold can only have been created to increase income for Perssimon (when you have liabilities of £0.8b, every little helps) I wonder if Roger Southam of Lease has a view on this?
Those that know me will be aware that I have experience with only freehold management. I will not ever endorse leasehold. (my mother, now 94 is in over 55s leasehold retirement for 20 years, the worst thing we ever did).
I cannot believe what I am reading about Persimmon and leasehold houses, why, It is only being done for further money making scams in the longer term. There is no need whatsoever to do houses at leasehold.
It is a national disgrace. Some way or another we need to tell all interested parties to these type of properties to keep away..
I fully endorse the comments from above posts ME and Karen
A message to MP’s,
That Persimmon would want to sell individual houses as leasehold only serves to demonstrate how leasehold operates to the disadvantage of leaseholders and is open to exploitation from the avarice of greedy freeholders.
If the leasehold system was balanced (as is claimed) why would Persimmon artificially create leases on these houses?
Here is a quirk of statistics that might be of interest to anyone contemplating the purchase of a leasehold Persimmon home, rather than a freehold Barratt Home?
NHBC statistics show that when it comes to NHBC Quality awards, a Barratt build receives a ratio of 6 awards for every one a Persimmon home receives..
Indeed, Persimmon does appear to occupy last position in the quality stakes..
No one can deny Persimmon are a successful company. It is believed the directors are considering awarding themselves a £100m bonus.
If they treat themselves to a top of the range television with their bonus, they might like to view the BBC Watchdog Persimmon feature.
Nice one Michael, and Trevor..
I note not one ‘professional’ has made a comment of this abhorrent practice. Probably frightened of upsetting their friends in the industry.
For various reasons I have serious concerns regarding some of the 253 comments made by people at the end of the papers article regarding leasehold.
A few do understand leasehold so that is a good point. However the amount of misunderstanding and naivety by such a lot of people is very worrying.
As, like most on this site, I really care about people, what shocked me most was some of the aggressive comments posted that were negative and nasty to others who had posted, even telling the Mail they should find better things to publish. What has happened to society..
In view of the cost of these leases (I nearly said houses) I bet there are a lot of 1st time purchasers who won’t have a clue about what they have actually purchased and what troubles will no doubt lie ahead.
Another leasehold “nasty” has been identified by Bob Smytherson of the FPRA (membership of which i strongly recommend)
We know about the pitfalls of owning a flat under leasehold and that of owning a freehold house where the landscaping is leasehold..
What then of the roads that service the development? Increasingly councils are not adopting those roads(to save money). So the burden for the condition of the roads and mains/cabling under the roads falls to the poor exploited leaseholders and not the council.
Just imagine what it would be like if Peverel/Firstport built and maintained the roads?
Thank you Karen. You are right . Thank you for bringing my pains back!!
Yes some freeholders try to make money from each corner and relate their greed to the lease. They try to make money; with the name of Legal Costs, Building insurance, Late payment, Major work and etc.
“It is a national disgrace.”Trevor
Trevor you are very right. The behavior of some freeholders is inhumane and brutal.. For making money they are ready to say lies and manipulate and even push people out of their home. They have had devastating impact on the families and their children. They should be stopped.
leasehold owners need to have power on their homes and their finance other wise life is a night mare for them.
Commonhold needs to be put back on the agenda for blocks of flats. Leasehold ownership on houses should be banned. We have a great country with a rich history but our reluctance to let go of some of the archaic legal structures we have is just plain silly.
The fact developers can construct homes in this way is absurd. It harks back to the feudal system. We need progress!
Just read your web page and blog Joe and if you do what you say, I think a lot of leaseholders in the London area will find you a refreshing change.
I look forward to watching your business progress.
Thanks for reading about us Karen,
Well, it’s not easy to build a client base working for home-owners only but we think it is the way the market is heading. If we can improve people’s lives along the way, all the better.
We want to be with, not against the positive changes in leasehold.
@PersimmonHomes & firstname.lastname@example.org
They want your feed back !!!!! Lets give it to them then…
Oh, that’s a great idea Karen,
I promise to send them an A4 page sized e mail a day this week.
Come on everybody. Please send them an e mail and post up on here that you have done, Thank you
All the Persimmon homes being built in my area re leasehold…. why? because the council are allowing them to, in exchange for section 106 housing…. nothing wrong there. But when it comes to selling the private buyers down the river at the expense of other groups than I do not agree with that.. It looks as though it is a do as you please so long as we get what we want scenario from councils.