On January 29 Communities Secretary James Brokenshire met leaseholder groups to gauge opinions on the government’s reform of ground rents.
Mr Brokenshire emphasised to the meeting that he had not moved from setting ground rents as low as zero, as pledged by his predecessor Sajid Javid.
He also indicated that he did understand – as some politicians have not – that peppercorn ground rents mean ground rents of no monetary value.
Philip Rainey QC explains what is a peppercorn ground rent:
Not £10 or, as some of the monetising bamboozlers in the sector like to pretend. Still less, £200 or £250pa over, say, 999 years.
Sebastian O’Kelly, director of LKP and www.BetterRetirementHousing.com, welcomed the Secretary of State’s clarification and urged him also to drop the exemption of retirement housebuilders to a ban on ground rents.
“If ground rents are wrong in the wider leasehold market, they are also wrong in retirement housing.”
Volume retirement house builders argue that they are essential because they cannot easily sell off-plan, like other developers, as buyers want the properties immediately. The retirement developers have also argued that the ground rents level the playing field with other developers because they build unprofitable communal areas: kitchens, lounges, office for the house manager, disability scooter storage etc.
It has been argued that these spaces add up to 30% of the whole building, which prompts a hollow laugh from community retirement operators who say 5% might be a bit more accurate.
There is little reason to pander to the retirement house builder lobbying, argued Mr O’Kelly, as they have done a pretty hopeless job of meeting retirement housing demand: only 2% of over-65s in the UK live in designated retirement properties, which is far less than North America or Australasia.
“The sad thing is that retirement housebuilders were thinking creatively of new models of tenure and operations when they though the game was up with selling off ground rents last summer.
“There was some genuine creative thinking. And a very influential chunk of the retirement market, the Association of Retirement Community Operators, who actually manage complex sites for the long term-term, have publicly stated there is no need for them. As have major investors coming to the sector such as Legal and General.”
Mr O’Kelly added: “There is a division in retirement housing between the community operators and the volume retirement house builders. The former relies on event fees on resale; the latter make a last-ditch plea to continue selling ground rents to speculators.
“There is not an ideal model, but there is more interesting thinking and hope for an expanded retirement housing sector with the retirement community operators.”
The annual conference of ARCO is a curious amalgam of outfits, such as Goldman Sachs and US private equity investor Blackstone seeing opportunities in this sector, along with organisations such as the Extra Care Charitable Trust and the Methodist Housing Association.
ARCO conference offers a different vision to retirement housing, but … – Better Retirement Housing
There will be – and there are already – issues with big event fees The conference of the Association Retirement Community Operators in central London last week offered a fascinating alternative vision for the retirement housing sector to the one that we have. The organisation represents providers who build and manage their own sites, as …
There are issues with event fees: the business models of the operators rely on the key event, resale of the property – almost always prompted by the death of the owner – is not too long delayed.
Other groups at the meeting included the National Leasehold Campaign, the Elderly Accommodation Counsel, the HomeOwners Alliance, representatives of Audley retirement leaseholders, some random RTM directors, and the chair and CEO of the Leasehold Advisory Service.
It was a positive meeting, holding out the hope that the argument for ending the creation of new ground rents is not lost.
LKP attaches here a briefing note of Philip Rainey QC, a leading barrister in landlord and tenant, explaining what a peppercorn ground rent is in law.
martin
The view that a ground rent could be £10 because that’s what was set in the right to buy legislation is based on a misunderstanding.
What the act said was that “the ground rent would not exceed £10 per annum” s6(4)(c) Housing Act 1980
The right to buy ground rents could always have been a peppercorn but local authorities all chose the maximum amount allowed.
Michael Epstein
So, it is claimed that retirement developments need to maintain a ground rent as the volume retirement house builders argue that “They are essential because they cannot easily sell off- plan like other developers as buyers want their properties immediately”
Does McCarthy & Stone undermine this claim when they state in their last published accounts” The sales initiative sets out to consistently deliver off-plan reservations of 50% or more by the first date of reservation?”
Indeed they set great store by changing the selling process(and improving cash flow) by increasing the number of off-plan sales.
chas Willis
If the VAT is due for House Manager/Development Manager (HM/DM) now, then how come as a Service provided by the Managing Agent Firstport Retirement charge our Development for their Training and Relief managers for Travelling Expenses.
Training for HM/DM is an on going Operating Cost as was noted when purchasing the Lease, and can still be seen in Literature provided to Residents when purchasing a Lease.
The cost of the HM/DMs Training varies depending on the qualifications they already have. Since 2012 we have paid circa £6,000 for the 7 HM/DM we have had.
We have also been charged Travel Costs for a Visiting Relief Manager costing us over £2,500 last year which again is an Operating Cost and was also included in the Literature first provided.
Operating Costs have slowly being transferred from the Management Fees we pay to be paid again as Service Charges therefore a Duplication of Costs.
When Peverel Retirement /Firstport Retirement made all but one Technical Staff redundant in 2009/10 they saved a fortune and then began to charge Service Charges for Independent Technical Staff to undertake the Painting, Window/Door Replacement and other contracts that require a S20 Notice. This Operating Cost was now a Service charge of 10% additional on each contract.
Firstport have never informed us they were now transferring Operating Costs which reduces their overheads, whilst not reducing Management Fees. Our Service Charges increase by 10% fee we now have to pay, no one bothered to inform us or discuss the changes as we were only Retirement Leaseholders who just pay and say nothing.
Having said that, far too little publicity had been given to the extra VAT payable by residents in Management Fees from 2012/13 charged at 20% increased our Service Charges over night by £2,000 plus.
As part of the complex rescue Peverel/Firstport in 2012/13 the development owners Tchenguiz Family Trust (TFT) sold of 4 Holding Companies to Chamonix & Electra, but the Landlord then and the Landlord now are still part of the same organisation and we were informed companies in the same Organisation are not required to pay VAT to each other, I have asked for the VAT to be refunded.
Peverel/Firstport refuse to accept that our development was not sold to Chamonix & Electra as Peverel/Firstport claimed. Even when Mr Chris Owens Customer Services Director, admitted we were not sold but had slipped through the net and therefore still part of the Original Organisation, they refused to refund the circa (now) £15,000 pounds, we were not required to pay, so much for being Open & Transparent.
Chris
Michael,
McCarthy $ Stone also claim the ground rents support on site facilities and this stops the residential units becoming too expensive as well as they cannot easily sell off- plan. The former business model sold the ground rents to offshore speculators as you know. In their new business model they retain the the ground rents …………and still use use both excuses for ground rent other than peppercorn.
McCarthy $ Stone are the kings of excuses, refusing to accept culpability in the drastic price falls in many of their developments. Often due to reducing the reducing the prices on the remaining flats, which leads a race to the bottom on flat values on competing re-sales. i.e. why would anyone buy a flat at £140k on re-sale when a new flat is £99k!
For the short term, service charges are the main outlay and concern of leaseholders but a different picture emerges when leases need extending.
With grounds rents at an average of £415pa, for 1 bed flat, increases occur at 33 years @ RPI on an 125 year lease. Assuming average inflation at 2.6% (30 year avg. historical), ground rent will increase to £978 with 92 years remaining on the lease. Extending the lease after that point would cost around £18k. Whereas with peppercorn GR, this will be around £2200. A huge difference.
As LKP argue, taking the monetisation out of the market will lead to a lot more harmonious and fairer retirement property market.
chas Willis
Whilst Ground Rent is an important subject how on earth can we as Retirement Leaseholders have confidence in Government when Ministers are seen to come and go and change what is needed every time.
Check Out ALEX BRUMMER: Grotesque abuse shown in flagrant leasehold rip-offs is just as bad as the PPI scandal: Updated: 02:06, 6 February 2019.
Precis
Few consumer scandals are as flagrant as the rip-offs involving leaseholds, some leaseholders are being charged excessively to purchase a lease extension or the Freehold. Another Tory Housing Minister Heather Wheeler has backed down and away from government promises to end this abuse.
The Mail has campaigned vigorously to highlight this scandal, which has seen thousands of hard-working families exploited by greedy landowners..
The Government vowed to end what has become a very lucrative business for landowners.
In 2017, the then Communities Secretary Sajid Javid promised to release leaseholders from such ‘feudal practices’, saying: ‘It’s unacceptable for home-buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms. So how can Ms Wheeler now lessen the problem and play down the fact that tens of thousands of people have been wronged by ruthless house-builders such as Taylor Wimpey and Persimmon, and, in most extremes cases, have seen their homes become unsellable?
Ministers are shamefully behaving like ostriches even though they are especially culpable in view of the fact that many of the properties involved were originally bought with the aid of the taxpayer-funded Help to Buy scheme. The practice of selling homes on a leasehold basis – compounded by the rights to collect ground rents being sold to City firms has been a key factor behind the fat-cat bonuses Persimmon’s Jeff Fairburn who trousered £75million before being forced out of his job.
Regardless of Ms Wheeler’s lame response yesterday, it is beyond doubt that the risks of taking on leaseholds, with the danger of ground rents rising inexorably, were never properly explained to buyers. If they had, I’m sure most would have backed away, however desperate they were to own the property. In many cases, cut-throat house-builders cynically took advantage of the naivety of some first-time buyers.
Most depressingly, the Government’s refusal to take responsibility for this scandal follows a series of other mis-selling scandals. For example, in the run-up to the financial crisis a decade ago, unscrupulous bankers mis-sold to unwitting consumers PPI.
Heather Wheeler, backed away from government promises to end grotesque abuse leaseholds. Ms Wheeler claims that the leasehold scam is different from PPI because the latter involved people being ‘sold something they didn’t really need. Is she wrong, as almost every House Sale of a property on leasehold was unnecessary.
We have come a long way from the days when leaseholds were sold because the landowners wanted to maintain future rights if coal or other mineral deposits were later found under the land. There is no such excuse today, house builders, like modern day Rachmans, have merely devised a new way of taking money from people’s pockets.
It’s long overdue for the Government to force house-builders and those in the City who have made hundreds of millions, if not billions, out of this scandal to repay the money, anything less would be a dereliction of duty and breach of public trust.
Chris
Maybe LKP should be asking why VAT on staffing at retirement blocks, which haven’t been accounted in the current annual service charge, have been dumped on the lessees . Anybody looked up the definition of contingency lately?
Michael Epstein
This is due to a change imposed by the Vatman. The use of a house manager is deemed as a service and therefore liable to VAT..
This is one extra for which an avaricious retirement developer is not responsible for!
Having said that, far too little publicity has been given to the extra VAT payable by residents as a result of the rescue of Peverel(Firstport) from administration..
As part of the complex rescue Peverel(Firstport) had to be spun off from the development owners (Tchenguiz Family Trust companies.)
VAT rules at the time allowed for maintenance on an owned property to be VAT exempt.
As a consequence of being hived off VAT of 20% became payable, greatly increasing service charge costs.
chas Willis
Also Michael, see my previous posting regarding VAT.
We had a Service Charge Meeting yesterday where we were informed that Appello had sold to Open Reach in 2017, the operating part of the business and as Open Reach were considered the best tenderer.
Since then our Monitoring Service has increased steadily but the Door and Emergency Service we pay for a Service Contract as a MAINTENANCE SERVICE AGREEMENT PEV12051 – for Warden Call and Door Entry Equipment has increased from:-
2016 – £645
2017 – £811
2018 – £1,160
2019 – £693
2020 – £2,015
I mention this as it has been a bone of contention for since 2008/09 when it was first brought to the attention of the then Area Manager and Regional Manager and in 2012/13 to the Customer Service Director who basically ignores the fact we do not have any Communal Doors at all, not one, to require Door Entry Equipment Maintenance.
The invoices we receive have no Company Heading other than an address which states Firstport Retirement and an email address for Appello.
To add to this insult they have now begun charging for:-
* 19904 – Labour – 0.25hrs – VAT20%
* TRS – Travel Time – 1.75hrs – VAT20%
* 19904 – Labour Again – 0.25hrs – VAT 20%
This was for a Smart Call Pendant costing
* £45.27
It then charges
* £85 for the first half hour on site.
Total GBS Excl VAT £130.87 then charges VAT again £26.05 so we paid £156.32 for a item that also states on the Invoice:
It also States on the Invoice:-
Ship-to Address – which was blanked out?
Two Invoices similar for -£156.32 and £156.34 and another for a YUASA 12v – 7a BATTERY and again it states on the Invoice Ship to address.
This is what the Retirement Developments have been putting up, but no longer.
Lets get back to reporting these scams on LKP and About Firstport and can Better Retirement Housing be used as a platform to allow us to post regarding Retirement Scandals that are still occurring?
Michael Epstein
To quote Firstport,:
Following an independently managed tender process Firstport has appointed Openview to manage the maintenance and repair of both fire systems and emergency call systems in our independent and assisted living developments across the UK
Openview were appointed following a comprehensive tender process. at every stage participants were tested on the quality of their service and the competitiveness of their price.
How odd then that the work invoiced to Chas’s development is so much more expensive than under Appello?
And how odd, that within weeks of the independently managed tender process the company winning the tender bought a substantial part of the tender losing company, and that the sale was organised by the company putting out the tender?
chas Willis
As a result of this massive increase I have begun again to check the last 4 years Expenses Files and noted the increase in 2016/17 and 2017/18.
These invoices for a one off Pendant had been asked of our Firstport Retirement, Area Manager (He leaves Firstport this Friday) in 2017/18, but a proper explanations has not been forthcoming. I sadly moved out of my Flat 2 years ago but have been unable to sell. A foot injury and operation and as Trustee for a Social Club that was forced to close in 2018, my time had been limited.
I had attempted to reach out to other Residents who were very unhappy but the time required to keep up with and check what new Scams Firstport Retirement has introduced is very time consuming.
I have just found another similar Invoice for a Pendant with a different Invoice Number and Order Number for £156.31, so we have 4 Invoices totalling £624 which was only found by careful examination of the Expenses File which was delivered out Coded Sequence with Invoices in wrong Coded Sections.
We have now paid for 5 Pendants since 2017 costing us circa £780 which could be delivered by post the next day, not have people travelling to deliver, we could have saved £553, but Firstport Retirement decide different.
chas Willis
Similar unfair happening can be seen at Dower Court in Paignton where some of the Freehold Residents are expected to each pay £2,132 annually for Estate Management Fees. As a Freehold Development no Ground Rent is paid but the Dower Court Management has still after 8 months continued to refused to explain how a deficit of £10,000 has appeared in the Management Fees.
It is known that £1,500 was for a Phone Bill for the Part Time Warden who is residential and only works 2.5 days a week. The other £8,500 has not been explained and residents are up in arms.
The residents held a Christmas Party in a passageway as the Communal Lounge and the Guest Lounge had been sold some time ago yet they were still showing in the Freeholder Resident Deeds.
How can a Local Authority sell of a Housing Association to profit making Private Company who then Asset Strips and is no longer answerable to it Residents. Is this is a perfect example of a company willing to exploit elderly Freeholders with Estate Management Fees?
It has been said that Dower Court was a lovely development ideally situated in Paignton, but has been completely ruined by Westward Housing Management. Originally it was known as Westcountry Housing.
Problems began when the name changed and new management came in. The new Management stated any previous dealings have become “Historic” and the new company would not be accepting any responsibility for previous problems. This is a Common Statement used by Firstport Retirement when a AM or DM leave, they claim the problems were down to them, which is RUBBISH.
Chris
Yes Michael, I appreciate it is not a decision born by freeholder or its agents. I am aware of why the VAT addition. Of course, staffing is part of the services to the development.
But the ad hoc payment (until they are incorporated into the next annual service charge) should be taken out of the contingency fund.
Contingency
noun: contingency; plural noun: contingencies
1. a future event or circumstance which is possible but cannot be predicted with certainty.
2. a provision for a possible event or circumstance.
My lease does not mention ad hoc charges. There is only GR and Service charges to be paid. Therefore, I believe I have no obligation to pay it because it is not included in the service charge. This is a very important legal point because what would then stop further ad hoc payments of any amount beyond the service charges or ground rent due at any future point?
a) Retirees have a fixed income unlike an employees of working age. With ad hoc payments is is impossible to raise there income to meet this.
b) This is the very point of having a contingency fund. When major works is undertaken, and VAT paid, it come from the contingency fund.
c) Contingency funds have hundreds of thousand of pounds
….and that`s on top of £120,000 proposed / enforced recommended “upgrade” to a perfectly legal and adequate fire alarm as installed under BS5839-6.2004.
Michael Epstein
Whether it comes from a contingency fund or a service charge, it still has to be paid. Unfortunately the “I believe” strategy has generally come unstuck in court at great expense to the “believer!”.
David McArthur
My very first contribution to this site was that there is no debate to be had, leasehold should be abolished – and if there is no leasehold, there is no ground rent.
But of course I am not God – I am not even Donald Trump, my contributions, and other contributions from the common man, mean little. I will say it again, the staying power of some people staggers me. In the face of powerful lobbyists for t’other side and an interested (as opposed to disinterested) government ,LKP keeps plugging away.
If I had a hat, I would take it off to those who continue to plug away.
martin
Many thanks for the comment its been a bit of a long slog but things seem to be moving.slowly.
Nikki
I would echo David’s support for LKP. Most people couldn’t handle the stress of this marathon campaign for justice for leaseholders pitted against a Government resistant to change and vested interests deeply embedded in the legal profession, government, DCLG and LEASE. A David v Goliath contest.
I am encouraged by noises from Brokenshire. Does this mean that Brokenshire will make a start by stopping the transfer of taxpayers’ Help to Buy money going to private developers and Housing Associations who still impose Ground Rents on new builds increasing every 10 years by RPI.