By Harry Scoffin
Four leasehold house owners in the former pit village of Thurcroft, near Rotherham, south Yorkshire, are bracing themselves for disappointment after almost six years of ground rent war.
Their former National Coal Board homes on 200-year leases saw ground rents leap from £10 a year to a demand for £2,450.
After arbitration in January, the figure has been reduced to £1,100, which the leaseholders are still disputing and the first-tier tribunal will make a ruling.
The revised ground rents on properties worth around £80,000 would still mean they were unsellable to anyone buying with a mortgage.
An earlier tribunal had ruled that ground rents of £115 would be in line with inflation after 50 years, which the leaseholders accepted.
But the figure was too small for freehold owner Coppen (Estates) Limited, whose directors are given as Alan Copley Pennington, Shirley Pennington and Alan Shaun Pennington, and the matter is back with the tribunal.
The dispute has involved a succession of dramas including involving self-representation at tribunal, arbitration, cancer, Alzheimer’s and a heart attack – and has been raised with Communities Secretary Robert Jenrick.
Alexander Stafford, Conservative MP for Rother Valley, asked Mr Jenrick in March about the government’s policy on ground rents.
“I wish to enquire whether the Government considers an increase of 24,100% [to £2,450pa] to be fair or equitable, and for such a proposed increase to be acting in good faith and in the spirit of the laws governing leaseholds,” he wrote.
Dennis Plant, 66, who has been leading the fight with wife Heather, 55, says his life has been blighted by the shock ground rent increase. In October 2014, he was notified that it would be rising from £10 to £2,450 per annum.
“I was diagnosed with bladder cancer two years ago. This leasehold situation hasn’t helped me one bit. It’s in my brain all the time. For six years, our lives have been hell. I have been up in the middle of the night researching, trying to get us help.
“I have worked 12 hours, 7 days a week to pay my mortgage when we had kids, and it feels like they’re just wanting to come and take our houses off us because of these feudal laws.”
Over six years, Mr Plant says he asked Coppen (Estates) Limited to confirm the name of the professional who set the original valuation, but has received no response.
In March 2017, the leaseholders served notice on the landlord to buy the freeholds, but there was no agreement on price and the issue went to the tribunal.
After their solicitor quit days before the hearing, the leaseholders, who are pensioners, had to represent themselves.
In the run up to the June 2019 court date, David Alan Senior, one of the leaseholders, was printing paperwork for the case when he had chest pains and was rushed to hospital. The tribunal noted that “Mr Senior is seriously ill” in its determination. In fact, Mr Senior went on to have a triple heart bypass.
At the hearing, Coppen (Estates) Limited argued that despite the terms of the 1960s-era leases, the tribunal had jurisdiction to rule on what the ground rent should be as part of valuing the freeholds.
The leases did not specify by how much the ground rent should increase by on the fiftieth, one hundredth and one hundred and fiftieth year rent review periods.
“The Tribunal disclosed to the persons present that compound interest on ground rent of £10 per year, at 5%, over 50 years, equals £114.67, rounded up to £115,” said the determination.
The leaseholders were ready to accept £115 ground rents, but:
“The Applicant took the view that this was entirely the wrong approach to take to the issue of setting a value for the ground rent,” the tribunal noted.
Coppen (Estates) Limited had earlier refused to go down the arbitration route.
The tribunal sent the parties away to agree on an arbitrator “competent to set a ground rent in these circumstances”.
In an arbitration ruling issued in January, the freeholder’s demands were halved and the ground rent went from £2,450 to £1,100 per annum.
The site value, which is used to calculate the ground rent, was brought down from £44,000 to £23,000.
The first-tier tribunal now has to decide whether it agrees with the joint surveyor-arbitrator’s ground rent figure, which is likely to keep the houses unsellable, or to get closer to £115 ground rents in determining the freehold valuation.
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What was the clause in the lease? Without knowing what the clause states, it is difficult to make any meaningful comment.
I note a joint surveyor-arbitrator was engaged in the exercise and came up with the figure of £1,100. Therefore, there is a reasoned legal argument as to why it is at that figure. It would have been a more interesting critique of the matter if the basis of the calculation of this expert had been disclosed.
“The leases did not specify by how much the ground rent should increase by on the fiftieth, one hundredth and one hundred and fiftieth year rent review periods.”
The lease would probably require the ground rent review to a modern-day ground rent
The calculation would be per the 1967 Act. The land value would be around 35% of the value of the property. With a property value of £80,000, the land value would be approximately £28,000, and a rent pitched at 4% of that sum would, of course, give £1,100
It is probably the failure of the solicitor acting for the purchaser to draw this review clause to their purchaser’s attention that is the root of the problem here. But it would only be a problem if the price paid for the property failed to reflect the ground rent review provisions.
Again and again I make the point, the root of the problem with ground rent terms could so easily be rectified if the Net Present Value of the rent was shown next to the premium. Such a value would enable a purchaser to ensure that their offer takes the ground rent into account.
The Conservatives have said they will apply zero ground rent to new leases (still waiting). Getting rid of parasitical ground rent investors from existing homes is another matter. £1000+ ground rent on homes valued at £80,000 makes them effectively worthless as unable to get a mortgage on them.
A tribunal ruled that the ground rents were appropriate at £115 pa. As the figure was settled at tribunal, that that figure was reasoned argument being the Coppen (Estates) Limited could not confirm the name of the professional who set the original valuation.
Tribunals and courts are always happy to enforce the T&C`s of leasehold contracts where it benefits the freeholder, but as shown in many previous cases, any part of the lease which is poorly drafted, the onus falls upon the freeholder being the “professional” party drafting the lease. Even in cases where the lease has terms which are clear, they often can be ruled as unfair terms.
If it is true that the lease does not include any ground rent review periods then this must be the intent from the outset. The current freeholder did not make a sensible business decision. Their loss. Would the leaseholders bought the leases if the knew the GR increase would be 24,000% in just a few year time? Probably not.
How anybody can ague that ground rents values of £24,00 or even £1,100 on properties worth only £80,000 must be sick in the head. Seems that again the freeholder is using a bias of the law to monetise its tenants. Shameful.
There appears to be no dispute that these leases have a review provision.
Very sensibly to save on costs there has been a joint arbitrator appointed to calculate the figure – he has calculated a figure of £1100 and as he is an expert in his field it reasonable to assume that it is most likely correctly calculated – whilst differing assumptions on yield may be held and in the value of the land the house stands on The figure the new rent could be argued around will fluctuate around that a figure of £1100 within a range of a few hundred pounds – it will not be anywhere near £115
The current freeholders are only seeking to gather in the rent as required under the lease/ 1967 Act – they have agreed to the appointment of a single joint expert – that hardly the behaviour of a mafia type group which the sensational headline paints them to be
The lessees were not given proper legal advice on purchase and it is against the solicitors to whom redress should be sought .
Why should the current freeholder lose out because of negligence of the solicitor who acted for the lessee on purchase – the freeholders have of course no right of action against them
Existing ground rents should be capped at max of £250 per year or 0.1% of property value whichever least
While the conservative government are in power this leasehold scandal will never be sorted as their mates hold the freehold
We live in a McCarthy and stone retirement apartments.
The 23 year clause tripped in this year INCREASING from £350 to £656. For the ground rent
The ground floor pays it,the first floor pays it and the second floor also Pays it.
For 38 apartments the yearly sum is nearly £26000.
Pension rises have no way increased to match the huge rise in ground rent and service
Charges.
Our service charges have increased 33% in four years.
The increase in your ground rent over the 23 years is around 87.5% and is in line with the RPI – The RPI in June 1997 stood at 157.5 and June 2020 is very close to 292.2 – an increase of 85.5%
The basic state pension in 1997 was £62.45 and today it is £175.20 an increase of 180.5%
Therefore, the ground rent has risen by less than the state pension over that 23 year period
Money Grubbing at its very worst.
The person commenting on McCarthy Stone should look into going for RTM and get rid of McCarthy Stone…saving lots of money on service charges