How the poor are robbed by professionals over lease extensions
By Sebastian O’Kelly
Every day LKP is contacted by leaseholders being systematically cheated in one way or another.
It might be any of these:
1/ Completely inflated building insurance costs.
2/ A local authority charging £8,000 to paint a communal corridor.
3/ Sublet consent fees, which the Upper Triubunal has ruled should be around £40, charged at anything between £125 and £250. Sometimes freeholders try it on with regular payments of “subletting licences”. Sometimes no subletting fee is permitted in the lease, but the bill (with legal threats) arrives.
4/ Ad nauseam game playing over service charge bills.
5/ Routine threats of lease forfeiture even for trivial money disputes from bottom-feeding debt collecting outfits, like the Liverpool solicitors JB Leitch.
6/ Etc etc … et bloody cetera.
But the resourcefulness of the leasehold sector to make a dishonest penny also shocks at times.
We have just been contacted by a woman who owns a £70,000 “bedsit” that had 58 years on the lease.
She decided to extend by 99 years. A good idea, except she left matters to a solicitor for an informal lease extension.
The result? She has just paid out £10,000 for a lease extension with ground rents that have risen from £25pa to £125pa doubling every 25yrs until it reaches £2,000 pa.
“At no time did the solicitor tell me this was going to be in the new lease,” she writes to LKP.
“I worry now in case this makes the property difficult to sell. Since then I have been informed by a relative that when you extend a lease you should usually get free ground rent. Please could you let me know your thoughts on this?”
Our thoughts are that she has been badly let down by her solicitors and should look to suing them for negligence (which is likely to be very difficult, unless the lawyers were very sloppy at covering themselves).
£125pa ground rents on a flat she reckons is worth £70,000 is way in excess of the Nationwide’s mortgage criteria. https://www.leaseholdknowledge.com/nationwide-bans-mortgages-doubling-ground-rent-properties
Admittedly, this formally applies to new build properties only, but there is no reason at all why it would not apply to resales, too.
So, the flat may well be very difficult to sell.
This leaseholder has been well and truly shafted: what little money she has is being taken off her by cleverer people.
The woman wanted to secure her future and her home; she has in fact created a long-term investment asset at her own expense to the freehold owner.
The wonderful fairness of good old English leasehold law, on which an edifice of parasitism sits.
If you wonder why Corbynmania is taking such a hold – sorry to boast, but I didn’t: predicting a hung Parliament when the election was called – you could not find a better example of rampant unfairness than the way this country chooses to organise the “ownership” of flats.
Anyone thinking of extending their lease should read our section on lease extensions in the menu above, or here
And here is the excellent Louie Burns, of Leasehold Solutions, explaining why informal lease extensions are poisonous
Related posts:
Barclays turns down mortgage on flat where ground rent doubles every 25 years
Police may need to investigate ground rent scandal, says Bottomley
Woman has £165,000 flat forfeited over what began as £290 ground rent demand
Have lenders refused mortgages on doubling ground rent properties?
Nationwide bans mortgages on doubling ground rent properties
Peter Bottomley MP calls for a debate on leasehold reform
I am very confused about this, because I was told that with lease extension, you also get “peppercorn” ground rent. Is that not so? Could someone clarify this point in a definitive way?
You can reduce your ground rent to a “peppercorn” rent, however, if you negotiate with the freeholder outside the 1993 Act, and don’t request a reduction in the ground rent, (effectively) to zero, then the new ground rent amount will be whatever you agree with your freeholder. If you serve a section 42 notice on the freeholder, then you can guarantee that the ground rent will be reduced to a peppercorn rent.
Yes, that is what Sebastian is pointing out. To achieve a peppercorn GR you need to follow the statutory extension route and there be dragons in your path. The statutory route requires the exact same original lease except for +90 years and peppercorn GR. That was the alleged government plan for extensions.
The lessee here went the so-called informal route (in reality the commoner route) which lets the freeholder rewrite the whole lease if they can get away with it.
There’s more…
Assuming the new GR of £125 was not backdated to the start of original term – big assumption to be fair – it’ll take four more 25 year increments to reach £2000 a year.
Doubling £125 every 25 years is equivalent to a constant annual RPI of 2.82%, which produces £250.52, £502.10, £1006.31 and £2016.83 GR increments.
On face value this GR irate will be claimed to be reasonable, except the real question is what a, by then ancient, bedsit would be worth in 100 years with a lease term of only 56 years and ground rent of £2000 pa?
This is the sleight of hand with escalating ground rents. Freeholders demand inflation-protected returns on what can be a minimal relative outlay (how much did this freeholder pay for the title?) while the leaseholder has no such right of expectation… the value of the lease simply deteriorates.
Leasehold is a cynical con trick through and through and only England and Wales would try to claim it is reasonable.
What I don’t understand is why her solicitor allowed that to happen. I could understand it if the lessee had organised the extension herself – it’s very easy to be duped by managing agents and freeholders. However she was represented by a solicitor so how is the average person expected to even know potential pitfalls, like doubling ground rent? You don’t keep a dog and do the barking yourself as the sayin’ goes..
The law makers need to recognise the sheer exploitations going on in the leasehold system and legislate to redress the balance, Audited accounts to be published annually, regulating managing agents, making them answerable leaseholders would be a start. And creating standard lease clauses to supersede any ridiculous ones. If that sounds too complicated then move straight to abolishion.. Is any party prepared to do that?
I was almost duped into signing up to an informal lease extension as it was £7,500 cheaper (on the face of it) than the formal statutory one (with peppercorn rental) but it was only after reading some of the articles on this website that I was alerted to the dangers of and gameship associated with informal lease extensions. I could not understand why the non-statutory informal offer included a new ground rent agreement that doubled every thirty-three years and came to just under a staggering £240,000 over the new extended lease term! The freeholder’s valuer who is also our managing agent and a qualified surveyor has never revealed the true cost of the informal lease extension or the reasoning behind the informal offer but I wanted to draw attention to the fact that the practice of offering non-statutory lease extensions with escalating ground rents is alive and well in the leasehold market and after voicing my complaint to the freeholder I can testify that those who offer informal lease extensions with ground rents that double have no qualms about it even if they are qualified valuation experts and may have breached an ethical code of professional conduct. Greed blinds the mind and numbs the conscience. It hardens the heart! C’mon Parliament. Time to wake-up and liberate leaseholders from all forms of leasehold gamesmanship and enslavement.
By the way, ten months after first asking for a quote to extend the lease on my flat my own saga continues and you would not believe the latest tactic employed against me in order to squeeze as much money as possible out of me but I will leave that for another time. Maybe, I should write a booklet entitled ‘The Trials and Tribulations of a Leasehoder’ but the story is not finished yet and may yet contain some more twists and turns! C’mon Parliament. Liberate leaseholders from greedy freeholders and the games that they play.
I salute you for ‘Waking up and smelling the coffee’!Your freeholder and managing agent appear to me like a right pair of Slimey Hustlers! Keep on your toes and don’t let them intimidate or bully you. Hope you are checking the annual accounts and ensuring that the legislation is followed re repairs etc.
I would believe you. Please do tell us about the freeholders stalling tactics….
Surely there’s a case here to sue the solicitor for negligence ? Or the very least not informing the Client of the statutory route as an option. Perhaps a “no win no fee” company would be interested in taking it up.
Yeah, there might be. But have you got any idea how stressful (not to mention expensive) it might be for someone not used to dealing with scammy lawyers? (I am not suggesting that in this case it was there was a scammy solicitor fault because I don’t know the whole story) leaseholders have day jobs , we cannot devote all our time dealing with whatever loophole freeholders come up with to “maximise revenue” . It’s up to the lawmakers to put thInes right, or not – as the case might be.
No immediate sign of law makers prioritising leasehold reform?
When Sir Peter Bottomley put a question for a debate to the Business Secretary on Monday gone, he was cheerily told there was a debate later that day where he could raise his issues. Maybe I missed it in Hansard, because there were three ministerial statements and a debate on the fire that day, not on leasehold?
As it happens I’m sitting on a 65 year lease too scared to act. I’ve resigned myself to treating the lease as a cheap long term rental (mortgage-free so only service charges) and will pass on any savings that otherwise would go to an extension to the kids. Not sure extending would recoup the outlay including fees anyway. That’s the real scandal with informal lease extensions: the valuation is theoretical as to ‘uplift’ value, not based on local reality. Maybe in Prime Central London informal extensions are worth it?
I’m really hoping the law will change on lease extensions soon. Or if not, alternatively that I go senile (not too soon mind) and need residential care and my low lease is too cheap for the state to grab!
Gotta look for any upside?
Hi Paddy
As you’re mortgage free you may want to consider approaching a lender who might be interested in lending you the funds to pay the lease extension premium so that you don’t have to find the cash straight away. Logically, the cost of the extended lease should increase the sale value of your property by at least the amount you pay. Realistically, and particularly so in a market in which property values are increasing, the lease extension premium should be much less than the increase in property value.
Happy to explain if you want to explore further. Feel free to get in touch.
Hi Paddy.
I wouldn’t touch an informal lease extension with a barge pole. My solicitor recently told me that it should be possible to get a mortgage for a lease extension, so you might want to seek some independent financial advice and seek some advice from a specialist solicitor. Unfortunately due to my circumstances the mortgage option is a no go but it might be worth your while exploring whether it is possible in your case. I would however only use the services of an approved financial adviser and a specialist solicitor. I checked out the credentials of my solicitor on the Law Society website first and, following the advice of my valuation expert, I sought assurance that they are specialists in the Landlord/Tenant field (yes, leaseholders are referred to as Tenants in the leasehold reform legislation!). I would not delay extending the lease as it will go up every year even if property prices remain stable. It is imperative to act asap and find a solution but be careful who you commission: check out their credentials.
If all else fails then it might be worth enlisting the help of your MP to find a solution. Perhaps the government can introduce a Help to Extend Your Lease for those facing extortionate and unaffordable premiums and cannot get a mortgage but that may only encourage more greed and gamesmanship I suspect by the freeholder fraternity. Don’t delay; find a solution but choose your advisers wisely.
My upstairs neighbour who was wishing to sell his flat ( with a lease of approx 54 yrs ) didn’t want to pay £9500 for a statutory 90 yr extension with a peppercorn rent, so he opted for an informal extension of 100 yrs at no cost, but the ground rent went from £15 pa to £450pa rising every 10 yrs in line with inflation.I was in the solicitors office with him when he asked if this would not put future buyers off. The solicitor said no, it was just another bill. He sold his flat to a cash buyer for only £50000, which was considerably less than he had hoped to achieve, but even the new owner is unaware of the implications of the lease terms. In about 17 years time the lease will need to be extended again before the 80 yr marriage value rule kicks in. As the ground rent forms part of the calculation the cost will be very high.
I extended a lease two years ago and used the statutory procedure, cost was £15,000 including premium, my legal fees, everyone’s survey fees, their lawyer fees. When my mother bought the flat five years previously, at 80 years remaining term, she was advised that the freeholder was not willing to extend the lease at the moment (leaseholder has written to mum’s solicitor to say they refused); mum’s solicitor advised her that the cost of extending would be £8000 and it could be done in two years time.
Mum’s solicitor failed to advise her in writing that she could be assigned the previous leaseholder’s right to extend, or that there was a statutory procedure to insist on a lease extension. And the solicitor now says they have destroyed the file as they are only obliged to keep for limited time.
Mum appears to have been ripped off, by her solicitor’s negligent advice. But I can’t prove it.
Has anyone successfully sued a solicitor for failing to advise on the statutory procedure and just recommending a cheaper short term informal extension?
Paddy – dId you consider getting legal advise re extending the lease. The statutory procedure guarantees you an extension. Consult a solicitor that has a reputation for helping leaseholders. Look on the LEASE website for solicitors advertising their expertise as advisers to leaseholders.