Mike Greene, the Brexit Party’s candidate who is expected to win the Peterborough byelection tomorrow is a former director of E&J Ground Rents.
This means he was a former business partner of Winchester-based James Tuttiett, who has turned E&J Capital Partners into one of the biggest players in the residential freehold game.
Mr Greene’s former role as a ground rent speculator is reported in the Guardian today.
The Sun attacks ‘fatcat’ housebuilders with inflated fortunes thanks to Help To Buy
E&J Capital Partners in full retreat over rapacious ground rent terms
Communities Select Committee chair Clive Betts MP is quoted: “Ordinary people are being ripped off by greedy management companies who exploit them to make an inflated profit. It shows the Brexit party’s true colours as a Thatcherite party with no concern for the people of this country.”
Greene, 54, joined E&J in February 2012 and left in July 2014.
The Guardian quotes leasehold house owner Anna Higham, 42, who paid £268,995 for a four-bedroom detached house on the Chapelford estate in Warrington in 2012. Her freehold is owned by E&J Ground Rents No4.
She pays £300pa in ground rent – more than the 0.1% of purchase price and therefore onerous – and it is review upwards every seven years.
Ms Higham says she was verbally reassured by the developers that she would be given the first opportunity to buy the freehold, but it was sold on to E&J.
“It is taking advantage of people,” Ms Higham says. “We had a plan to be able to own our own home, but it could be that I have been paying off my mortgage for nothing. I am angry that I am in this position.”
The Guardian reports:
A spokesman for Greene insisted that he was a member, not a director, of E&J No4 and was never an active participant in running the investment vehicle.
“The investment was made seven years ago and was disposed of, from memory, to a pension fund five years ago.
“The investment is a recognised product and he participated as such. He never actually owned the freeholds. This was about ground rents, which are seen as a safe investment,” he said.
Related posts:
Ground rents to be allowed in retirement housing, says government
Leasehold first-time buyers trapped in leasehold homes with £800 ground rents, says BBC
Savills and Allsops: Why ground rents from people’s home are just so ‘attractive’
Scandal makes Ground Rents Income Fund plc fall £6m since March but … it has paid out 40.6% in three years
Daily Mail says blue chips are cashing in on ‘rip-off ground rents’
‘Fleecehold’ property trap returns to parliamentary agenda with new private member’s bill
To quote
She pays £300pa in ground rent – more than the 0.1% of purchase price and therefore onerous – and it is review upwards every seven years.
There really needs to be a definition of what is an onerous rent.
£300 per annum is the same as the RFL on a Ford Mondeo. £300 is what a large screen LED TV will lose in value in the first few months of ownership . In absolute terms the sum is really very minor in the grand scale of things. By banging the drum and arguing that £300 blights the sale prospects of a property hardly helps those who own such a property
In deciding whether a rent is onerous, the whole deal needs to be looked at. If a flat which would normally sell for £300k is sold for £50k with a ground rent of £8k then that rent can’t be argued as onerous because the price paid for the property clearly reflected the size of the rent
What is required is for the Net Present Value of the rent to be shown next to the premium calculated using a defined discount rate. In that way a purchaser will appreciate and take into account the size and terms of the rent when formulating an offer
In fact very large rents would probably not be onerous because the purchaser would see the figure and take advise on it and formulate their offer accordingly. It is small rents with obscure terms or terms designed to confuse – ie Mr Payne and his games over rateable and rentable value which are the onerous ones where purchaser don’t appreciate what the rent may mutate into and offer on a property not taking into account the terms
The £300 ground rent helps (not blights) the situation for the owner of the property. It makes the Freehold a valuable asset for a future sale.
It is the unfortunate Leaseholder who suffers by having to fork out £300pa for sweet FA and finds it difficult to sell on the Leasehold.
Indeed the ground rent is for no service – the lease will make that clear. Therefore this financial burden needs to be reflected in the offer made for the property.
So if a £300k flat has a ground rent imposed of £8k per annum say linked to the RPI and marketed for £50k then the owner of the leasehold interest can not complain that the rent is onerous as the matter was considered at the time of purchase and the price paid for the flat took the financial burden into account
Onerous ground rent only exist where people fail to consider the financial obligation to pay the rent prior to purchasing the property – to help I suggest the NPV of the rent be shown next to the premium
One of the delightful revelations of the Communities Select Committee inquiry into leasehold was that developers and freeholders cannot get their stories straight on the value of freeholds.
Hence this:
Leasehold sector game players adopt highly controversial methodologies to ascertain the value of freeholds. Developers who create these leases do not. Hence the difference in value of a leasehold house to a freehold one is a few thousand pounds, according to developers. (LKP has also demonstrated that freehold houses at Persimmon’s Harrow View West are selling for £50,000 less than identical leasehold ones were.)
Your solution to the ground rent issue is to lay it all down clearly at purchase.
A commendable notion – we would support full home information packs including the leases at outset – but one absolutely at odds with developers’ sales priorities and the fiction of selling leasehold as “home ownership”.
Selling leaseholds as “lease-rental” contracts is one of the recommendations of the Select Committee. And a very fine idea, too. Removing the Help To Buy subsidy on leasehold purchases would be another excellent policy.
I am not really sure where your argument is going
Perhaps to refine my idea the lessee should have right within a period after the lease is granted to extinguish the rent to a peppercorn on payment of the NPV of the rent disclosed at the time of sale.
Perhaps also the value of the reversion at the time of the sale also to be shown next to the premium paid and value of the ground rent and the lessee to be able to extend the lease on payment of that sum again within a period (not an indefinite one) to have the lease extended/purchase the freehold
“She pays £300pa in ground rent – more than the 0.1% of purchase price and therefore onerous – and it is review upwards every seven years.
There really needs to be a definition of what is an onerous rent.”
Erm… you just quoted the definition as “0.1% of purchase price”..?
Err read again my post – the words you have quoted was he very words I quoted out of the article this thread is about
The article gives the definition of an onerous rent.
You then claim there needs to be a definition… even though you just cut and pasted a definition?!?
What on earth..?!?
That is not a definition….. that is just a rant from someone writing the article.
There needs to be a study into how the level of a ground rent effects the value of a property and how review patterns can impinge on values
Some of you believe that a rent linked to the RPI or average earnings makes a flat un-mortgageable,. If you review the CML handbook not one lender places any objection to a rent linked to the RPI
There is a urgent need for clarity on what is an onerous rent because otherwise many lessees with ground rents linked to the RPI or average earnings may find that cant sell them. It is my view that would be the result of the recent hysteria that has broken out on the subject
There was a recent case where the solicitors acting for the purchaser wanted a deed of variation to lower a ground rent from £250 pa to £237 so that the rent was 0.1% of the value of the flat. The vendor of the flat had to pay the freeholder £250 compensation for the loss of income (perfectly reasonable) and nearly £850 in legal costs (the freeholders and the vendors own solicitors costs
You post claims that:
“That is not a definition….. that is just a rant from someone writing the article.”
This is false.
The definition is actually mentioned by several mortgage providers in the Lenders Handbook of the CML:
https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1852/
The clarity has already been provided.
But Stephen, whilst you are correct in stating that £300 RFL for a Mondeo is minor in the grand schemes of things , may i respectfully point out that one fundamental difference is that the person generally paying the RFL is the owner, whilst the person paying the ground rent is a long term renter.
You wouldn’t expect to rent a Mondeo from Avis and pay the RFL?
You are missing the point I am making
The technical nature of the RFL is not the point -the point I am making is that the idea that a ground rent of £300 per annum is so large as to effect the sale prospects of a flat costing £350k is ridiculous .
There needs to be a measurement as to the financial impact of reserving a rent so buyers can consider the consequences of agreeing to pay a rent and as I keep saying this is best achieved by having the NPV of the rent shown next to the premium paid for the flat.
If the rent is considered prior to purchase and the offer made for the property reflects that financial burden – then whatever the ground rent is and whatever the terms are the lessee will not be financially disadvantaged
I drive a Ford Mondeo.
The road tax is £120 a year (not £300) and the Government uses that money to invest in infrastructure.
Developers and freeholders admitted to the select committee that ground rent is “pure profit”.
Stephen
To say she pays £300 – pa in ground rent – more than the 0.1% of the purchase price and therefore onerous – and it is reviewed upwards every seven years.
From the £300 a year from 2012 if this doubles then in 2019 it is £600 see below.:-
2019 – £600
2026 – £1,200
2033 – £2,400
2037 – £4,800
2043 – £9,600
So in 24 years from now, Rent will be £9,600.
When Ground rents were introduced they were Peppercorn Rates which had no Monetary Value other than to create a Contract. Your definition of the car is a poor reflection on the fact.
.
You claiming that banging the drum and arguing that £300 blights the sale prospects of a property hardly helps those who own such a property is a fact which you seem to have disowned. The £300 is now £600 and increases dramatically so dropping the price may be a way but why should any of this have happened when greedy developers saw the opening to charge excessive Ground Rents as had begun on Leasehold Flats.
Mentioning Mr Pain (I know it is misspelt), again is a poor reflection on the fact as to why was it allowed to happen when regulations in GB are some of the most stringent in the World, except that for Leasehold which has been open for exploitation since the LTA 1967.
Michaels Fundamental Difference is a good analogy and the excessive Ground Rent will blight these dwelling and also then reduce the value of the Freeholds as does the marriage value on a leasehold flat.
When ground rent were being reserved in the early 1900’’s they would be perhaps a £1 per annum for a modest house in an industrial area
What you have failed to appreciate is that £1 was about 75% of a weekly wage of a factory employee – hardly a token sum
I have an auction catalogue of the sale of leasehold properties in South London from 1926 and all the properties sold had a ground rent payable of around 10% of the rack rent of the property – hardly a token sum
The terms on which a developer wishes to dispose of a property should be entirely up to them – if they want to impose a rent that is their choice . What matters is that whatever ground rent the developer wishes to reserve is clearly shown in the lease and the future rises clearly set out and it’s financial impact disclosed – then it’s up-to the purchaser to either accept or reject those terms
Years ago hire purchase agreements did I not have to disclose the APR if the deal and all sorts of mischief prevailed – now thanks to the Consumer Credit Act there has to be disclosure of terms and cooling off periods
What I am suggesting is that the NPV of the ground rent is shown next to the premium calculated using a discount rate set by the government so that the true cost of commuting to the rent is understood
Stephen,
If what you say is fact and Ground Rents were supposed to be Of “No Monetary Value” as stated by a very high ranking QC, will you please explain how £1 per annum for a modest house in an industrial area is considered to be a Peppercorn Rent.
Your auction catalogue of the sale of leasehold properties of around 10% of the rack rent of the property – hardly “No Monetary Value”?
Except a Victorian ground rent of £1 a year does not double every 10 years.
Erratum
2040 – £4,800
2047 – £9,600
So in 28 years from now, Rent will be £9,600.
To Quote from above report :
The Guardian quotes leasehold house owner Anna Higham, 42, who paid £268,995 for a four-bedroom detached house on the Chapelford estate in Warrington in 2012. Her freehold is owned by E&J Ground Rents No4.
She pays £300pa in ground rent – more than the 0.1% of purchase price and therefore onerous – and it is review upwards every seven years.
The lady has paid £269K for a house and given a lease with ground rent starting at £300 p.a. Paying £269K to developer means she has paid for the ENTIRE building costs including land acquisition , house building costs and company overheads such as administration staff, sales staff and even 10%+ profit. and the lady should be entitle to become legal owner of the house. The Developer verbally agreed to sell her the freehold title.
Instead of buying the house under freehold title , she is given a leasehold title with ground rent starting at £300 p.a. by the developer . The developer kept the freehold title and sold it for £7,500. to another party ( based on £25 x £300 p.a ground rent.
This is called “switch selling” and it is a criminal offence under .the Fraud Act 2006 Part 4 ( Fraud by abuse of position ) .
Section 4 of the Act – Fraud by abuse of position
(1)A person is in breach of this section if he—
(a)occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person,
(b)dishonestly abuses that position, and
(c)intends, by means of the abuse of that position—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.
(2)A person may be regarded as having abused his position even though his conduct consisted of an omission rather than an act.
LKP and Guardian should assist the lady to make a formal complaint to the CMA about sale of house under leasehold title which is used to deceive buyers into entering ” long lease contracts containing unfair terms and being required to pay annual ground rent” . .
The “unfair terms” include :
(1) “forfeiture of lease” if ground rent payment falls into arrears over £350 after 3 years ,
(2) “paying cost for lease extension” and “marriage value” if extension is applied below 80 years .
(3) loan interest deducted from rental income before calculating the profit. ..
These unfair terms are added into the legislation by Government and helps the unscrupulous directors of ground rent companies.
“That is not a definition….. that is just a rant from someone writing the article. ”
Stephen can I ask you not to be rude. 0.1% of property value is used as the definition of onerous becasue that is what a number of mortgage companies have adopted. While there have been many freeholders who have argued there is no precise legal definition of “onerous” it is irrelevant to the argument as the market has made a de facto decision that >0.1% is onerous even though RICS has argued that up to 0.2% acceptable in the past,
Can I suggest your position is based on what you believe is the correct economic view but which we see is not how things work in the real world. Of course, the consumer and their valuer should incorporate the ground rent into their valuation of a purchase price but the price is based on demand, not economic value. Nobody is making an NPV calculation on GR terms and then factoring it in for the vast bulk of sales.
It’s for this reason the retirement developers have been able to grow their ground rents to considerably more than £300. Older people looking for a retirement home are very often not making a decision based on value for money and the developers know how to exploit this position.
Could I reverse the argument on you and ask why ground rent investment companies seem to do no more than run some form of pyramid scheme. If they operated in an economically rational world it would not be possible to but a freehold at X and revalue at 2X in the same year. and be able to borrow against that 2X value and then use that money to buy another X which they then revalue at 2X or sometimes more.
Stephen, If the leasehold system was not being gamed to the detriment of leaseholders who normally would take out a 25 year mortgage to purchase a lease, how could it be that the financial institutions saw such a long term potential profit in ground rents and the add- ons they spawn that they granted Tchenguiz Group companies mortgages secured against assets valued over a 150 year period? Even new financiers for Tchenguiz assets such as Rothesay Life use an 85 year term?
I only come here from time to time now, and nobody but nobody puts Stephen in his place, I am not suggesting that they tell him to **** ***, that would delight the mummy’s boy. Everyone plays Stephen’s game, they challenge his assertions, they examine his maths: when his assertions are bogus, and his maths irrelevant.
Just the once I have seen someone deal with Stephen appropriately – Admin. The response was, lets stop fucking about (I paraphrase), be upfront and market properties FREEHOLD at your supposed, price, and let the market decide.. .
.
David
Your inability to put forward a professional / balanced counter argument demonstrates clearly to me – you can not argue against my case so you resort to name calling and quite frankly damn right rudeness – hiding behind mummy’s apron.
Aside from leases where terms have been introduced to deliberately deceive or confuse lessees then the deal should stand – if solicitors acting for lessees were in league with the developer then regardless of the six year period of limitation the lessee should have a course of action against their advisors – possibly on criminal grounds where the six year rule would not apply .
Stephen
I withdraw “mummy’s boy”, happy? I have no further comment to make as none are necessary – your arguments are bogus and your maths irrelevant.