Changing doubling ground rents to RPI allows a quick sale or enfranchisement but loads the freehold with revenues
My 250-year lease with doubling ground rents add up to £1.9 million, but RPI ones add up to £25 million!
Communities Select Committee needs to haul in the housebuilders
I bought my home from Taylor Wimpey in 2010 and it has one of the now infamous doubling ground rents.
Please note that Taylor Wimpey are not the only developers to implement doubling ground rents; Countryside and Persimmon are also offenders. Taylor Wimpey and the ultimate owner of my freehold, Long Harbour, would like you to believe that this is no longer an issue as they have kindly set aside £130 million to rectify the problem.
They will contribute £750 in legal fees for me to convert my doubling ground rent to RPI. Problem solved right? Well, actually NO.
I’ve reviewed the offer that’s being made and want to explain why making the decision to convert to RPI is by no means a “no brainer” and far from an ideal solution to this problem:
Under the terms of my current lease the ground rent doubles every 10 years for 50 years, by which time it will be £9,440 per annum. It then remains at £9,440 pa for the remainder of the term of the lease and the ground rent paid over the full term of my 250 year lease is a staggering £1,979,450.
The proposed new lease terms increase the ground rent by RPI every 10 years for the full term of the lease.
The last published annual figure for RPI was 3.3%. Sure, under RPI increasing terms, the first few increases are more modest than my current doubling lease, with ground rent being a mere £1,500 after 50 years, but would you like to guess what the total ground rent is over the 250 year term? £25,758,709.
And if RPI was 5% for the term of the lease, a jaw dropping £930 million.
Compound interest is a hard thing for people to get their heads around and the impact of the compounding in the later years of my lease leads to figures that are truly horrific.
So, if I decide to convert to RPI, I’m trading short term gain (in ground rent terms) for long term pain and kicking the ground rent bomb down the road.
Who knows what RPI will do in the future?
The Office for National Statistics published an excellent article on March 8 this year on the shortcomings of RPI as a measure of inflation: “In 2013, the RPI lost its status as a National Statistic. Our position on the RPI is clear: we do not think it is a good measure of inflation and discourage its use.
“There are other, better measures available and any use of RPI over these far superior alternatives should be closely scrutinised.”
They also said “the evidence suggests it is likely to overstate inflation”. If RPI reaches 7.18% pa this is the equivalent of doubling. Given that context, housebuilders and freeholders should be challenged on why RPI increasing ground rents are acceptable.
This is a conditional offer.
In signing the Deed of Variation I also have to sign a Deed of Settlement which involves me signing away my rights to claim further from Taylor Wimpey and may also prevent me from giving evidence in any future class action against Taylor Wimpey or at the much needed Government Select Committee Inquiry into the leasehold scandal.
Clause 5 in this Deed of Settlement buys my silence.
Make no mistake, this offer is an exercise in limiting Taylor Wimpey’s corporate liability.
My solicitor, who is specialist in leasehold law, has asked Taylor Wimpey to simplify the schedule in the Deed of Variation that explains the new ground rent terms as it is so complicated she is struggling to understand it. Taylor Wimpey has refused. She also advises me that the undertaking she has to sign is unnecessary.
It will make enfranchisement cheaper, for those trapped in this mess that can afford to buy the freehold.
Please note that there will be thousands of people for whom enfranchisement is just not an option; regardless of what measures the current Government take to make it more affordable.
There are many posts from people in the National Leasehold Campaign Facebook group whose ground rent has already doubled who are struggling to make ends meet.
These people will remain subject to the horrific ground rents referred to above.
In my case, if I convert to RPI, it should bring the cost of enfranchisement down from £23-33k to somewhere in the region of £11-13k.
Legal fees will be about another c.£3k as I not only have to pay my own legal fees but those of the freeholder.
Compare that to the £4,425 I could have bought the freehold from Taylor Wimpey for at the time I purchased the house if I had been properly advised by their sales people and the conveyancing solicitor that they recommended.
I understand that the Law Commission is looking at making enfranchisement cheaper and easier.
Freeholders are already anticipating changes and we are seeing a flurry of informal offers to leaseholders of new build homes (which tend to be what we call fleecehold offers – money making permission fees are left in the transfer with fees for home alterations, remortgages, even permission to have a pet!).
Informal offers are tempting but fraught with risk.
We are also seeing a big increase in cases going to tribunal with the freeholders hurrying to set case law precedents for low capitalisation rates that will make buying freeholds more expensive.
Precedents exist in Scotland and Ireland for freeholds to be made available for a simple multiple of ground rent.
The whole tribunal system for property is corrupt and broken and needs to be urgently addressed.
There is the possibility that doubling ground rent terms may be ruled unfair contract terms and struck off. If I’ve converted to RPI where would this leave me? Potentially worse off?
Taking the decision to convert to RPI is not all all straightforward. If you were me, what would you do?
Please use your influence to press for a Government Select Committee Inquiry to hold those responsible for creating this mess to account.
There is no need to wait for the outcome of the Law Commission work – we need answers NOW as to how we’ve got here.
A number of people are going to convert to RPI without realising the full consequences and all key influencers and media need to understand that the Taylor Wimpey Ground Rent Assistance Scheme does not fix the problem and should not be hailed as the solution.
Joanne Darbyshire is a joint founder of the National Leasehold Campaign along with Cath Williams and Katie Kendrick
Chris
These developers have a lot to answer for! Interesting article and shows the dilemma we are all in.
Olly S
Very honest account. Describes my situation exactly. The developers are putting us in an impossible situation. Far being from helping us they’re trying to trap us even further
Katie Kendrick
Government MUST hold these developers to account. There MUST be a full Select Committee into the Leasehold Scandal ASAP.
There is no other way.
Today the National Leasehold Campaign achieved over 10,000 signatures to request a select committee.
CV bite
Agree government have to stop them now owe are to many to suffer because of the gready developers in my case Persimons ..we are 100,10000 of us in same situation how is posible the government stay and watch and take no action on helping us?!how u sleeping at night when know that us we cannot sleep in “ours homes”not feel anymore our homes we don’t want lost this chance will fight till something will be done …will not rest and watch enough is enough
Elwira
I’ve been reading and reading about leasehold problem (as we can’t call it a joy or anything else) and the more I’ve been reading, the less I want to own a property.
In the XXI century when you’d think a good job is sufficient to settle down, get your own property and start a “real life”… you buy only the impression of your own place, you buy something where there are more rules than real joy.
You can’t have a flower pot outside your own window (!) , you can’t own a pet … where is this world going? You buy a flat as your first property often because you don’t have money to buy a house. And you have to already think about selling it in a few years as it is just not worth keeping it!
My mum has lived in her flat in Poland for over 30 years … it is her home and she can freely use it and do with it what she wants.
I just cannot believe a country that has always seemed ahead of us (UK, of course) puts its own citizens in misery.
You’d think there would already be solutions in place?
I love this group and I am glad I got here but the more I read the less I want to “step on the ladder “ as I simply feel it’s not worth it. Feel sorry for all of those people whose vision of owning their “own” place was that much different to what it became.
I really hope in this case UK will follow those less developed countries and finally settles on a good solution for so many people who work so hard and simply deserve safe future. Sorry but I couldn’t help myself and had to express my anger. Keep it up group, I hope the day comes !
Linda
I’m in the same situation Jo , our estate 42 houses 24 apartments all stuck in this horrific position, I just hope these unscrupulous developers get hauled in front of a select committee to be made accountable for their actions . How has this been allowed to happen to thousands upon thousands of normal hardworking families. This is destroying families with the unmeasurable stress
Sally M
Very useful information for anyone trapped in this situation. A select committee is the very least that people deserve. leasehold tenure is feudal and used virtually nowhere else in the world apart from England and Wales.. The government need to act to avoid the housing market grinding to a standstill.
Andrea
I while heartedly agree, I’m stuck in the same nightmare mess, when you buy your home, it should be just that, not a rented property that will probably take you in to negative equity to buy the freehold.. Moving to RPI is not the answer, TW are not bothered about helping us, they just want to salvage their image. TW should stand by what their salesman advised at the point of sale!
Gary Okell
We used the Government Help To Buy scheme on a Redrowhomes leasehold house. I find the dark realisation that we didn’t really buy anything & Government have lent us money to buy what amounts to a long tenancy. Our freeholder thanks to Redrow is an offshore investment firm in guernsey called Adriatic land 5 Ltd. They own land & property and my family are their tenants. Government helped us into this mess with helptobuy advertising & promotion, they should fix the problem they helped create.
Claudia b
Agree they bring up us in this misery they need to find a solution. And take us out and help us,we are trap all in this situations and instead of been happy we have a home we just stress everyday ,everyday is a battle ,lot of us straggle is so hartbreking what happen they trick us and they not been punish for this ,for how long ,how long will take to have justice ?!
Jill
Absolutely disgusting, and even if you buy the freehold aptly named fleecehold it still has the onerous money making clauses left in ,ie permission fees to decorate the interior of your home , own a pet , change mortgage provider, sell your home and build porches etc that don’t even need planning permission , these permission fees usually cost from £300 upwards , all being sent offshore !!
Siobhan
The government must step in and do something about this awful situation. The stress and anxiety that arise from living with a crippling lease is debilitating! Now the new TW offer brings more anxiety. Why should we sign away our right to complain and whilst committing ourselves to an RPI linked fleecehold? The government must bring these builders and leaseholders into line and give us what we rightfully deserve: the complete freedom from onerous leases and a freehold property where we can live in peace, not the nightmarish proveribial albatross we have now.
Keith Hince
How can this scandal be allowed to happen in 2018,Doubling groundrents RPI increases evert 5 years. Permission fees, insurance rip offs & terrible management companies like Homeground with links to X Priminister ..? Come on Government & end leasehold like every other country in the World has done
Sue R
As a pensioner widow who struggled to pay a mortgage for years on a freehold property and have now downsized (mortgage free) to a new build Persimmon home, I felt happy in the knowledge that I will be secure for the rest of my life. Now I find I have a ground rent of £160 pa. that goes up with RPI every 10 years and that I have to pay permission fees to make alterations to “my house” that I have paid for and that I do not really own. I feel I have been duped and robbed of my lifelong savings and those of my hardworking late husband. The guilt I feel for inadvertently squandering my children’s inheritance on buying a white elephant will not go away. I would dearly love to buy the freehold but without the removal of permission fees there is no point. I doubt I will be able to afford to do so anyway now that the cost are rising all the time. The government must act to stop this blatant rip off of innocent people just trying to make their homes a secure and nice place to live in. The freeholders/ property developers and solicitors need to be held to account as thousands of us have been deliberately mislead and misinformed from the beginning. England and Wales’ property laws should mirror those in Scotland. The government need to free us from this trap. Already the houses on my estate are struggling to sell. Soon they will be unsaleable and the housing market will stagnate. I won’t even start to go into the issue of management fees.
Andrea harris
I am a doubler and it has already doubled! I am now single parent and can not meet these payments!
Not only was I not advised about the leasehold or service charges on my TW property my solicitor never told me either!
I’m am furious there is no help other than £750 legal fees!
Without the campaign and contacts I’ve made I’d be none the wiser and have no support!
Something needs to be done now!!!
Cathy Gale
Great article. Jo is describing my exact situation. My house is unsaleable due to this crisis. I have two disabled children, my house is no longer suitable im unable to move. The government must act swiftly to rectify this disaster.
Steohen
I think the article fails to consider that if inflation was 5% a year what the impact will be on incomes
So a rent of say £30 million a year would be paid out of an income which presumably would also be hundred of million a year
Probably far better is to have the income linked to average incomes with it rising or falling in line with incomes
Trevor Bradley
You just can’t leave it alone can you Stephen.
In the vast majority of cases there is NO NEED whatsoever (other than greed) to have leasehold houses – hence why they should be banned.
You many posts clearly support keeping leasehold, regrettably for all the reasons on why it should be banned
admin
Always interested in your technical defences of leasehold practices.
Surely, taxpayers through Help To Buy should not be paying out to help first-timers own a home and then discover that they have created a tradable investment asset that pays out £25m to often anonymous speculators often based offshore?
Just a thought.
David McArthur
Once more I quote Crispin Blunt MP, TORY member of parliament for Reigate –
“Present-day “onerous ground rents” are, more likely than not, the resultant of UNCONSIONABLE conduct carried out by one sector of society who have superior information flow (developers, freeholders’ funds, financiers, solicitors) at the expense of an unsuspecting and more naive part of society (consumer homebuyers).”
Further, “Titles to people’s home is demonstrative of their ownership to their home that is to serve as a physical shelter and emotional safe haven for the family. Shelter and security is a fundamental need” ““I advocated there should not be any ground rent as property title should be either freehold or commonhold in the future”.
We have a quite appalling system of government here in the UK, if something is wrong, it needs fixing IMMEDIATELY, and leasehold itself (and all of it’s attachments) is wrong. Action is required now, and not after Royal Commissions and reviews and debates and studies and consultations.
Sir Crispin Blunt ( have knighted him, he deserves the honour) is no firebrand socialist, no revolutionary, he is a TORY for god’s sake, and without an interest in our leasehold laws apart from (it seems) a belief in decency and propriety. Sir Crispin believes our leasehold laws should be abolished. ABOLITION now, and with RETROSPECTION.
Lou Valdini
Excellent summary Jo.
sussex
The artificiality in modern leases has grown to disgusting proportions. Leasehold has become a licence to cheat homebuyers in the first place, and later on to commit fraud and perjury with impunity.
I see no excuse whatever for ground rents to be anything more than a token amount (under existing law), and of course long leases should be banned in future and replaced retrospectively.
Don’t shoot the messenger, but the bad news is that successive governments and all major parties have too many vested interests for us to realistically hope for total reform at the present rate. In my view we need far greater exposure of those underlying interests, and exposure of present and past government collusion in the frauds that take place. A private prosecution or two, preferably.
Otherwise, ‘fixing the broken housing market’ will remain largely an excuse to go on and on building more houses willy-nilly in the never-ending rush for profit.
Others write elsewhere about ‘The Justice Gap’: to quote Michael Mansfield QC at
http://www.thejusticegap.com/2017/06/ge2017-politicians-little-say-access-justice/
“This comes close to identifying the core force and agenda which lies behind the current predicament. The historic justification for cuts has been economic. But this is a façade, given the financial resources that are always seemingly available for aggressive foreign adventures. It is no coincidence that the legal aid cuts have run alongside cuts to substantive social welfare generally. It is done to disempower and subdue. The consolidation of vested interest continues apace with financial institutions still measuring their future by sizeable bonuses equivalent to the legal aid budget.”
Leasehold is an ideal tool for those in power to keep us there, in the justice gap. Not ‘poor’, because we ‘own’ property, so are undeserving of help or sympathy from pseudo-socialist officials. (As the Local Government Ombudsman told me: ‘we are not here for people like you, people who own property. You can afford to go to court’). You find the same logic running through every government institution, in my experience, judged by their actions or inactions in some cases, and by their words in others. ‘Insufficient resources’, you see.
Gary
I’m not convinced the government is on the side of leaseholders. More than two years after this scandal broke in the national press there is no clarity or certainty that they intend to do anything substantive for leaseholders caught in the doubling ground rents or fleece hold traps.
At the very least they need to be honest if they’re not going to do anything say so and at least we will know where we stand and are able to quantify our losses for the purposes trying to purchase lease variations and freehold purchases and try to recover all or some via potential legal actions.
Meanwhile people trapped are undergoing psychological pressures, relationships are suffering, moving plans are postponed indefinitely and the normalalities or life such as divorces, deaths are happening with this horrendous situation hanging over people.
My view is that this situation could be the result of coordinated action by developers and freeholder investors aided by parts of the legal profession whose ultimate aim were not just the creation of additional revenue schemes but to engineer forefiture of property over time by leaseholders being eventually unable to pay doubling ground rents and service charges.
I was told on the phone by my developer that “these 999 year leases were never intended to run their full term as they would become unaffordable long before then”.
From the numerous comments on here, in the various consultations and with the passage of time I think it has been shown that the industry has no, and I repeat no, intention of putting this right voluntarily, actually the evidence is they are entrenching their position or creating worse scams.
So there simply isn’t any excuse for the select committee sitting on the fence.
Meanwhile, whilst there is some reform in the pipeline, although what’s planned, if anything, for existing leaseholders is far from clear, the Law Commission recommendations and any resulting legislation is likely to take years and many of us will be ruined well before then. All the more so as developers, freeholders and unscrupulous investors are exploiting the government’s inaction to lay fresh traps for desperate and vulnerable leaseholders.
Also, based on previous failed reforms a Brexit obsessed government and opposition and other massive issues such as the crime wave and NHS I’m not sure 100,000 plus leaseholders are a pilitical priority.
We must continue to protest and I really do applaud the huge efforts of the LKP and the Facebook group and the good people in parliament.
But until I get some clarity from the government good or bad, it really is difficult to decide whether to grasp the nettle and accept a massive loss on my property or wait until the government introduces a much needed formula for lease variations, collective enfranchisement and freehold purchases without the massive fees, rigged tribunal system, dubious no win no fee legal offers and freeholdaying that are more rife than ever.
Until they give us a clear signal one way or another we remain more vulnerable than ever.
David McArthur
Rome wasn’t built in a day, old boy. These matters (leasehold laws) are complex and require expert and diligent attention, heaven forbid we act in haste and there are “unintended consequences”.
Look what happened with the hasty (from the start to actual legislation, a mere fifty years) abolition of slavery. And now the West Indies beat us at cricket, half of our soccer team is black, we even have black MP’s, lawyers, businessmen. My God Sir, William Wilberforce would be turning in his grave if he were aware of the unintended consequences of enfranchisement.
I am not one to advocate keeping the masses in their place, I am the most benevolent of men, ask my servants. But give the hoi polloi too much, they’ll get ideas above their station. Between you and I, best throw them a few crumbs, perhaps suitable reforms – but not too suitable.
sussex
David
There were very serious ‘unintended consequences’ in 1995, when lobbying brought amendments to the L&T (Covenants) Act 1995. The act was intended to release original lessees from residential leases they had long since sold. Due to leasehold law applying equally to business leases, my understanding was that the legislation became a bone of contention between two of the most powerful property groups in the country (Duchy of Westminster and the Boots Group, I believe, the one being mostly lessor to the other).
The consequences for residential leases have been exremely serious, because this began the idea that developers – original lessors – can be released from their covenants after selling the land. (Thus TW thinking they need not compensate subsequent lessees, among other problems of landlord lawyers ‘misunderstanding’ the differences between leasehold and freehold covenants).
My father had a series of heart attacks while trying to deal with the consequences, back in the late 1990s. He died a few months after I helped him deal with the issue. Please do not joke about it.
David McArthur
Sussex,, In view of the situation you describe, it is no laughing matter at all, it is a crying matter. But opponents (developers, freeholders, lawyers etc) of reform/abolition use the “unintended consequences” line as a wholly bogus reason not to reform/abolish – you know this anyway, I am sure. These opponents (of reform/abolition) are not concerned for people like your father, they are concerned for themselves, and the potential loss of easy money.
sussex
Indeed
sussex
Well said, Gary. We are in limbo.