barcode1966

In a time of universal deceit – telling the truth is a revolutionary act

Parallels in the movement to abolish slavery and the leasehold system today

fullsizeoutput_78dThere are far more similarities between the slave trade and the leasehold system in England and Wales than you would ever imagine. The leasehold system is a form of financial servitude where the leaseholder is forever compensating the freeholder for living on ‘their land’. Just like slavery, the leaseholders find themselves snared in this system without ever giving their consent.

Wait, you may say, the leaseholders signed the lease! Surely that is consent to them being bound by the rules of the leasehold system? Not true, leases are purposefully drafted by freeholders and their oily solicitors to obfuscate the true nature of the terms. Generally, the punitive fees demanded for licences and permissions hidden in the lease vaguely promise to be ‘reasonable’ but are usually far from that.

The real truth though is no leaseholder has ever granted their consent to be part of the actual leasehold system itself, no leaseholder wants that, they want a share of the building and land it sits on when they purchase their property. Commonhold exists and should be compulsory like it is in the rest of the world except all flats and many houses in this country are created as leasehold with no consultation with the future purchasers.

Freeholders regularly trot out the moronic excuse ‘if you don’t like leasehold, don’t buy a leasehold property, simples!’ But with 5 million leasehold properties accounting for nearly 20% of the total housing stock in a market suffering severe housing shortages, blaming a leaseholder for buying a property of this type is like blaming a starving person for eating contaminated food, they have no choice!

There is little profit to be had from arguing this point further, only freeholders and those who make their money representing them bother to deny this is true and their voices are valueless in this debate. Leasehold is an unfair, unjust system which immorally benefits a few at the expense of the many, just like slavery did. Undeniably immoral but inexplicably not illegal at all!

The slave trade in Britain in the 18th century

In the 18th century the slave trade in Britain had become one of the main sources of wealth for the British Empire and had grown into the ‘dot com’ lucrative financial bubble of its time.

It wasn’t just the slave traders that rode into villages and forced millions into a

curtailed life of servitude who profited from this trade, there were fortunes to be made by helping to finance the transportation of slaves too or even just buying a couple of slaves as a pension for old age. The slave trade was respected and so ingrained in many aspects of daily life that ending that trade seemed impossible.

In the 18th century alone British vessels were involved in the shipping of between 4-5 million slaves.

The support for the trade came from the very top of British society. Queen Elizabeth I bankrolled one of the first ever slaving expeditions, in fact the royal family and the wider aristocracy’s financial support was central to the development of the lucrative slave trade.

For example, ‘The Royal Adventures in Africa’ company had financial backing from King Charles II and his wife the Queen, seven Knights of the Realm, four barons, and a Marquis.

The Bank of England also backed the slave trade. Richard Neave was the director of the bank and was also the director of the ‘Society of West India’ merchants and his son went on to run both companies simultaneously too. It was the backing of the financial sector that really allowed the slave trade to become so established.

The slave trade also created the very first British millionaire, William Beckford, who owned more than 22,000 acres of land in Jamaica. He along with his brothers used their wealth to become MPs and subvert both political direction and public opinion in favour of the slave trade.

In fact by 1766 there were at least 40 MPs who were either planters or they made their money from the slave trade in some way or another. The abolition of slavery seemed like an impossibility, everyone was making too much money from it to ever allow it to change.

Then along came a remarkable man who decided to make it his life’s goal to do just that, bring to an end the slave trade.

The man who made slavery illegal.

Thomas Clarkson was born 1760. He was the son of a reverend and grew to be a good six inches taller than the average Britain of the time. He was bright, enjoying his education but he was seemingly destined for an unremarkable life as a priest in a sleepy country parish somewhere.

However, he entered a competition where he had to submit an essay written in Latin to win a prize. He won the prize but the contents of what he had written would change his life completely and eventually the world.

The topic of the essay was ‘Anne liceat invitos in servitutem dare?’ (‘Is it lawful to enslave the unconsenting?’)

fullsizeoutput_748Thomas was so deeply affected by the research he had done for his essay that he became consumed with wanting to find out all he could about the slave trade, he read everything he could about it and when that was not enough he went out to speak with anyone he could find who had first hand knowledge about it.

He said of that time that: “A thought came into my mind… that if the contents of the essay were true, it was time some person should see these calamities to their end.”

Thomas became that person, a man possessed. He started to scour the country looking for like-minded people he could talk with. It was said he would often ride 16 hours a day and he travelled at least 35,000 miles on horseback before he saw his dream realised.

It became the norm that people would threaten to kill him and on a stormy night in Liverpool a group of slave ship owners tried to throw him into a torrid sea.

To get his message out even further he translated his essay into English and distributed it across the country, as well as igniting sentiment it also acted as an introduction to other anti-slavers and soon a body of resistance had formed. This angered those at the very head of the establishment as well as those who made their fat living from slaves.

However loudly Thomas’s voice would decry the inhumanity of slavery the establishment would shout as loudly back declaring slaves were simply being saved from a life of savagery and were being given a chance to become ‘good’ Christians. They argued that contrary to what Clarkson asserted, slaves were generally treated well by their masters except of course for the odd ‘bad apple’.

Thomas knew he would have to raise his game considerably if he were to drown out the white noise of the establishment’s pro-slavery PR campaign.

He started to display the tools of the slave trade which were openly on sale in most port towns. He had handcuffs, leg shackles, thumb screws and surgical instruments with a screw device called a ‘speculum oris’ which were used to pry open the mouth of any slaves refusing to eat, who figured being dead was better than the life awaiting them, so they could force feed them and the slave owner would not lose their investment.

He also displayed fine art work and crafts produced by the slaves to show they were in no way ‘savages’ and no different from any other human being.

People power and politics

He also knew he would need political support if his campaign stood any chance of success. He first met William Wilberforce, the man who would eventually get all the credit for the abolition of slavery, in 1787. After a long and animated discussion between the two men Wilberforce agreed to raise the issue in Parliament for the first time.

Clarkson’s campaign started to gather pace quickly and by 1788, 103 petitions for the abolition of slavery had been signed by around 80,000 people and presented to Parliament and Wilberforce did manage to raise the issue of the slave trade in the House of Commons.

Although the abolition movement had gained considerable public support it was the political influence of the slavers in Government that was hard to shake. Lobby groups went into Parliament to argue their side of the debate. They cranked up their PR campaign another notch, even claiming that the time slaves spent on the slave transportation ships being ‘carried to their new adventure’ were the “happiest part of the Negros life”.

The efforts of these slavers in Parliament turned the abolition battle into a war of attrition with many debates on the subject in the house becoming nothing more than hot-air.

Clarkson realised that continuing to call for the abolition of slavery as an all-or-nothing event was futile, there were too many vested interests standing in the way.

He needed something that would sway public opinion so firmly in his favour that it would sweep away the political opposition and he came up with an idea that was pure genius.

A picture paints a thousand words

fullsizeoutput_745He decided to commission a true life accurately scaled drawing of the conditions slaves were actually transported in. He used the exact measurements from an actual ship which carried anywhere from 697 to 740 slaves. The picture painted a truly dire picture of the conditions the slaves were transported in, it shocked the nation and the effect of that picture was like a bomb going off.

Once printed, it began to appear in pamphlets, newspaper articles, magazines and books. Also 7000 copies were produced which were hung on the walls of homes and pubs throughout the country.

This picture was one of the most important instruments used to turn public opinion against the slave trade once and for all and would create a swell of public anger that would sweep away the political posturing.

The picture was important for two reasons, firstly it made ludicrous the slavers claims that being transported in this manner could be the best days of anyone’s life. More importantly though, it humanised slaves as people just like us. It forced people to see slaves as fellow human beings who had the same feelings and dreams that we did and were not just revenue generating units for the rich to grow richer by exploiting them.

It proved decisive.

The end of slavery and the biggest compensation pay-off in history

An unavoidable momentum gathered pace and as we know the slave trade was eventually abolished in 1833. The story doesn’t end there though.

The Government was forced to compensate all the slave traders and owners and it became the biggest compensation pay-out ever made and still, to this day the total amount paid out has never been beaten.

The British government’s paid out a total of 20 million pounds to compensate some 3000 families for the loss of their ‘property’ the slaves. This equates to about 18 billion pounds in today’s value.

The list of those who received compensation was far reaching and showed how this trade had become part of the fabric of life. There were also many notable names too like the families of David Cameron, Douglas Hogg, Graham Greene, George Orwell and the Earl of Harewood who all received considerable compensation when slavery was abolished. John Gladstone the father of the 19th century prime minister William Gladstone received compensation of £106,769 which is worth around 83 million pounds today for 2508 slaves he ‘owned’.

Not one slave though ever received a single penny compensation from the Government to compensate them for what they went through.

Let’s look at the leasehold system today and look at the many similarities.

The history of freeholders in 200 words

The very first freeholder was the Crown. William the conqueror took all the land in country by force which the Crown still, technically, owns and have managed to cling onto for nearly 1,000 years. Some of this land was then dished out in a feudal stylee to aristocracy and nobility in exchange for funds and military support and they too still own huge swathes of the country as well as many of the most lucrative freeholds.

The industrial revolution and a steep rise in the population happened as the aristocracy declined so the new freeholders were wealthy individuals who hoovered up ground rents as fast as they came to market. Many of them were either already involved in politics or quickly became involved. Others simply funded political parties who promised to represent their interests by maintaining the leasehold system and blocking any attempts to alter legislation.

The financial world has always supported the freeholders with banks, Insurance companies and pension funds woven into the history of leasehold. Of course there are also thousands of ‘accidental’ freeholders who also can be vicious and amoral who see their leaseholders simply as a way to get rich on the back of their suffering.

The campaign against the unjust leasehold system

In the building of Britain leasehold became a vehicle to make staggering wealth for the freeholders, especially when there were no legal rights to ever enfranchise (the meaning of which comes from the old French enfranchiss “to set or make free”).

A freeholder would sell a lease on a piece of land for 99 years (called a building lease) and the builder would build a property to the freeholder’s specification and sell it. Once the lease had run its course the freeholder would then take possession of ‘their’ house (or flat) which they had never paid a penny toward and could sell it on again and again thanks to leasehold creating a perpetual land ownership device for the rich.

That is how many of the grandiose squares in London came to be built and are still owned by the ‘great’ estates who are the freeholders. This method of wealth generation was not limited to prime central London though.

This was also a standard method employed in Wales and Cornwall for miners and farmers. A miner would lease a bit of land and build a home for their family and live it in for generations until one day the freeholder would write to them explaining that the lease had fallen to zero and they now owned the miners house and could they please leave or pay the freeholder a fortune to stay.

In the late 19th century this prompted a huge outcry against these greedy freeholders with newspapers constantly writing articles in support of the leaseholders and emotive debates in the House of Commons. There were marches and demonstrations and the rise of a new term ‘anti-landlordism’ a derogatory term to describe unscrupulous freeholders.

Over the next 160 years there have been countless efforts to end the leasehold system by various groups with varying degrees of support but all of them have been unsuccessful…. up to now.

Why is that?

For the very same reasons the movement to abolish slavery found it so difficult to change a blatantly immoral and brutal system, the movement to abolish leasehold has hit the same brick wall. The people who own the freeholds are often the very elite of society with huge political influence. They are backed by powerful banks and pension funds who make a fortune from the system or they are freeholders who fund political parties to look favourably on their cause, to keep making money from leasehold.

Everyone is making too much money so why change it? A few million people are trapped in this nightmare form of land tenure but, big deal right?

Also the Government knows that to make any retrospective changes to the leasehold laws would trigger a compensation payment to the freeholders that would make the slavery compensation amount look like small change.

Are the leasehold houses the ‘Clarkson picture’ moment?

There is now a huge new movement against the leasehold houses scandal which has gained so much traction it is reaching a critical mass. There have been numerous political statements, inclusions in the Queen’s speech promising to wipe out leasehold abuse (the irony of which should not be overlooked) and it is spoken about daily in the press and media.

The leasehold house scandal has become vitally important in the battle to end leasehold. Just like Clarkson’s drawing of the conditions of the slave transportation, the leasehold house scandal has humanised leaseholders and brought to the public’s mind just how bad the abuses of the leasehold system can be.

Even though many have tried for years to bring focus to the constant abuses suffered by leasehold flat owners, it has always brought a shrug of the shoulders and a swift “Well, flats have to be leasehold don’t they?”

With houses though, it is easy for everyone to understand that there is no need to build houses as leasehold.  Add to this the fact developers and freeholders included onerous ground rents and lease clauses simply to make more money, then this has proved to be a step too far in the public opinion.

It is therefore essential that the owners of those leasehold houses as well as every other leaseholder in England and Wales should get behind this campaign and support the abolition of leasehold houses. This is the first positive step in ending leasehold and once the sale of them has been banned the focus will shift to leasehold flats.

People will see that there is no reason that flats should be leasehold either but are made so solely to create an asset class for wealthy people to get wealthier.

An important note

I want to make it clear that in no way whatsoever am I comparing current day leaseholders and their experiences to the actual slaves and the brutal and criminal way that they were treated by the elite of this country.

My comparison here is made purely on the history of the abolition of slavery, the process they went through and the challenges that campaign faced.

There is then an obvious comparison and lessons we can learn which we can apply to the campaign to end leasehold.

We look back at the history of the slave trade with repulsion and disgust and it is hard to comprehend that at one point in our collective history this vile trade seemed a legitimate way of making money.

One day I hope people also look back at this unjust leasehold system and wonder how we all allowed it last for nearly 1,000 years.

Anne liceat invitos in servitutem dare?

Filed under: Uncategorized, , , , , , , , , , , ,

The forgotten casualties of the doubling ground rent scandal

fullsizeoutput_730It has been immensely gratifying over the last few months to see the focus firmly remain on the leasehold house scandal where many of the largest developers needlessly sold houses as leasehold.

To make matters worse they embedded excessively high ground rents with accelerating clauses which see them double every 10 years or are linked to RPI. They also inexplicably buried clauses in the leases which allowed the new freeholders to demand huge sums of money for licences and permissions to be paid to them by the unsuspecting leaseholders.

This has left tens of thousands of people in seriously financially disadvantaged positions which has caused them severe stress and upset all caused by major developers who they trusted, a real scandal.

Through the indefatigable efforts of The Leasehold Knowledge Partnership and the National Leasehold Campaign Facebook page, the continued focus on this needless scandal has started to bring real change.

There have already been statements from the Housing Minister, the Prime Minister and even in this years’ Queen’s speech all promising to end the leasehold abuses.

It has also seen Taylor Wimpey offer 130 million pounds to try to ‘rectify’ the doubling ground rent scandal. On top of that Nationwide Building Society have now altered their lending criteria on leasehold properties with many other lenders confirming that they are reviewing their current criteria too.

Arguably though, the biggest benefit achieved so far has been to raise the issues of ground rents in the consciousness of the nation.

The biggest ground rent scandal

There is however a bigger scandal on a much greater scale that involves doubling ground rents which is waiting to be uncovered. This scandal has already affected hundreds of thousands of people. This scandal is receiving virtually no media nor political focus and many leaseholders are completely unaware of the trap they are blindly falling into.

I am referring to informal lease extensions undertaken for leasehold flats.

What are informal lease extensions and what are the real issues surrounding them?

If you need to extend your lease you have a legal right to extend your lease by an additional 90 years and importantly your ground rent is reduced to zero.

Once completed this strips out any future income from ground rents and lease extensions for the freeholder and they really don’t want this to happen.

Avaricious freeholders and their oily legal advisors put in a huge amount of effort to prevent leaseholders using their legal rights to extend by constructing ‘Machiavellian’ informal offers which are quick, easy and seem to save you money but the very opposite is true.

How do freeholders push their informal lease extensions onto you?

fullsizeoutput_72d.jpegIf a leaseholder decides that they need a lease extension they will generally contact a solicitor or valuer to ask their advice. The majority of these professionals will recommend contacting the freeholder directly in the first instance to ask them how much they want for the extension. They will claim to be ‘experts’ in negotiating directly with freeholders and point out it could save you time and money.

Even if you don’t contact your freeholder directly, you will often find you receive an informal deal from your freeholder once you have Served the legal Notice to extend. Many freeholders have a process of refusing to negotiate on a legal lease extension and promise to be difficult throughout whilst presenting their informal offer which they will complete on cheaply and easily.

Once the ‘deal’ arrives from the freeholder these professionals acting for you will often intimate, with heavy caveats of course, that it is a good deal for you. If it’s a bad deal but you’re extending because you wish to sell the flat, they will often advise you to let the person who buys from you ‘deal with the consequences, why should you worry?’

These deals will usually offer to extend your lease back up to only 99 or 125 years. For example if the lease on your flat had fallen to 80 years it would only be topped up by 19 years to 99 years as opposed to having a lease length of 170 years through the statutory route)

Instead of reducing your ground rent to zero they will include new onerous ground rents which can be between £250 – £500 per year. Their coup de grâce will be to link this onerous ground rent to an aggressive accelerator, like ground rent doubling every 5 or 10 years.

This is evil genius by freeholders because not only will they make a fortune from the actual ground rent they will now collect, they know that in another 15 years or so someone will have to extend the lease again and with ground rent that high they will have to pay many tens of thousands of pounds for the extension.

They have turned a one off lease extension which may have earned them a few thousand pounds into a valuable asset which could easily earn them at least £60,000 to £70,000 over 15 years.

If you would like a full explanation of why informal lease extensions are so damaging, please click here.

What does this mean for the flat owner?

fullsizeoutput_734A leaseholder who tried to rectify their lease length and accepted one of these informal lease extensions has sold themselves into huge debt to save just a few hundred pounds on the cost of a statutory lease extension.

At best it will strip any equity that they may have built up over the years in their flat and at worse it will leave them with an unsellable flat.

If you have accepted a ‘quick and cheap’ informal deal to enable you to sell your flat, you may now find a much more cogent buyer refuses to buy your flat or they may offer a much lower price for it to take into account the dreadful deal you have signed your flat up to.

Potentially buyers will now also find it much more difficult to secure a mortgage on a flat with onerous ground rent terms as lenders tighten up their lending criteria. This could leave you with a flat that is unsellable.

There is no doubt that due to this increased focus on ground rents from buyers and lenders real care should be taken before you decide to agree to accept an informal offer.

How can informal lease extensions still be legal?

What is so astounding is the fact that these informal lease extensions are allowed to happen in their thousands every year to unsuspecting flat owners.

In a world that offers so much consumer protection, how can greedy freeholders be allowed to trick people with complex compounding financial deals that ruin lives?

How can it be illegal to sign someone up to a £10 a month mobile phone contact without spelling out every single aspect of the deal first but it is legal to trick someone into a complex deal which could cost them £50,000 with no legal recourse?

How can informal lease extensions be unregulated still?

What is the best way to keep free from the effects of these informal deals?

  • Don’t ever consider accepting an informal lease extension offer.
  • Insist that the ground rent is reduced to zero (thus stripping out any future value)
  • If you are buying a flat, ask if the lease has ever been extended.
  • If the lease has not had 90 years added or if there is still ground rent, it’s an informal.
  • If it has demand to see the ground rent and when it increases.
  • Consider carefully the real implications of the deal before buying.

This can only be answered by Government, the DCLG and LEASE who are all totally silent on this scandal.

The next leasehold ground rent scandal

fullsizeoutput_732There is no doubt that this informal lease extension scandal will soon be uncovered and written about and the scale of this scandal will be staggering. I estimate that between 40-50% of all lease extensions carried out each year are informal and this has been going on for 25 years!

When flat owners come together and realise what they have been tricked into signing by amoral freeholders and their solicitors a scandal of breathtaking proportions will be revealed and it will dwarf the current leasehold houses scandal.

There will be tens of thousands of flats that will be unsellable and thousands of normal hard working people will see that they have been tricked into giving the financial provisions they have made for their future over to greedy millionaire freeholders.

It is time for the government, trade bodies and the media to step in and rescue the forgotten casualties of the doubling ground rent scandal.

Filed under: Uncategorized, , , , , , , , , ,

The dangers of buying the freehold of your house directly from your freeholder

Introduction

fullsizeoutput_664Thousands of people who bought new build houses have now realised that, through no fault of their own, they have bought a leasehold house with bad ground rent terms. In addition there are costly lease terms that mean they have to pay the freeholders fees for permission to alter their homes, change carpets, carry out DIY and even to sell their own properties.

This has lead many to the conclusion that the only option is to buy the freehold of their own home but are confused about how to go about it and what is involved. This confusion adds considerably to an already stressful situation, so I would like to offer some clear advice on the best option you have to get out of this unjust situation.

There are two different ways to buy the freehold of your home

You have a legal right to buy your freehold under the 1967 Leasehold Reform Act. Here there is a legal process to follow with a statutory valuation method set down by law. If the freeholder will not agree to negotiate fairly you have a legal right to force them to and you are offered legal protection on the terms of the freehold purchase.

To many people this process may seem daunting and uncertain and understandably people shy away from it.

The other option is to contact your freeholder directly and ask them how much they want from you to buy the freehold and see what figure they come back with, this is called an ‘informal’ deal.

The purpose of this article

I have now been contacted by hundreds of people who are asking my advice on whether the best option they can take to buy the freehold of their house is to negotiate the cost of doing so directly with their freeholder.

I have already written a very comprehensive article entitled ‘The leasehold houses scandal and what you can do about it’, but because of the number of calls I have had, I’ve decided to produce this document to help you make the best and most informed decision.

This article will set out why the informal deal with your freeholder is often the worse deal you could possibly make.

You have no legal protection

First and foremost I would like to state it is very important to know that, if you negotiate directly with your freeholder, you are actually stepping outside of any legal protection you have under the Act of parliament that was brought in for you to buy the freehold, the Leasehold Reform Act 1967.fullsizeoutput_47b

The Act was designed to offer leaseholders legal protection when you go through this process and legal ways you can force your freeholder to negotiate fairly with you during the purchase of your freehold.

An ‘informal’ freehold purchase, however, means you step outside of this protection and will be dealing with your multi-millionaire professional freeholder directly. They bought your freehold to make as much profit from you as they can, and you can only hope that they will act fairly with you.

Therefore the details of the offer you will receive from your freeholder will be a ‘take it or leave it’ deal and if you are unhappy with the price quoted or the terms of the acquisition they are proposing you have no way of forcing them to change the terms offered. Your only option will be to walk away from the deal.

Your freeholder will not want to sell you the freehold of your home at all, they bought it as a long-term investment in the hope they would be raking in profit from you for many years to come. This means they will be asking for a huge amount of money and will also look to retain terms in the purchase that they can still make money from in the future.

I cannot stress enough that you should be highly suspicious of these offers and act with  extreme caution.

How do they work out how much you should pay?

When your freeholder quotes you a figure to buy your freehold informally they are literally stating the largest amount they can extract from you.

The figure quoted is not based on the statutory valuation method in any way ,shape or form it is just a huge figure plucked out of the air, a figure they will often charge you to produce.

I see freeholders regularly asking for 30, 40 or even 50 times your current ground rent as  the figure quoted and this is outrageous and can be double or sometimes triple what the statutory valuation method would be!

Your only option to try to reduce the bloated figure your freeholder has proposed is to write back to them and ask them nicely if they would lower it. They will sometimes knock another few grand off the price but as they don’t want to sell it and they don’t need the money why would they offer you a fair price?

I have now seen many people buy their freeholds informally and pay £25,000 more than they should have done just to avoid going down the statutory route!

Beware of some other tricks your freeholder could pull 

I have now seen many, many cases where people have bought the freehold of their homes, but the freeholder has managed to retain clauses where the fees for licences and permissions due to them are kept in the terms of the informal deal!

You have bought your freehold for an eye watering amount of money but you still may have to pay for permission to live in your own home.

Some of the clauses I have seen retained are leaseholders still having to pay £300 permission per room to change the carpet.

Several thousand pounds to pay for permission do any DIY on their own property, four and half thousand pounds for the permission to build a conservatory in their own back garden and £107 for permission to put up a blind above a kitchen window.

Many hundreds of pounds for permission to rent out your own property or the same amount when you want to sell your home.

It is this wildly unjust leasehold system that allows this travesty to be even possible but predatory freeholders will take full advantage of it.

The offer to turn a doubling ground rent to one linked to Retail Price Index (RPI)

The other thing I have seen freeholders offer is to change a ground rent that doubles every ten years to one that is linked instead to RPI.  This is done under the pretence of them deciding to act fairly and change your bad situation to one more favourable to you.

On the surface this offer may seem like a God-send but with all things leasehold, the devil is in the detail.

If you have a doubling ground rent you will be very keen to explore this with your freeholder but the deals I have seen offered of this type are not good at all and should be looked at with extreme suspicion.

One of the very concerning things is that the freeholder wants your ground rent to double first BEFORE it is linked to RPI, which means most ground rents would now be £590 per year linked to RPI for the remainder of the lease.

fullsizeoutput_4c7This in turn means that, if you accept this deal, your house now has an onerous ground rent that will stay linked to RPI and be an onerous one for evermore. The onerous ground rent might still give you problems when you try to sell your home.  Nationwide Building Society is the first mortgage provider to announce that it won’t lend on homes with onerous ground rents. Other major lenders are likely to follow.

On top of this freeholders are asking for between £12,000 – £15,000 for them to transmit doubling ground rents to one linked to RPI. This is outrageous!

Also in these deals the same terms of transferal will apply with the retention of licences and permissions which will be included in the terms of your new lease.

Additionally, if you wish to go on to buy the freehold of your house with a £590 a year ground rent linked to RPI then it will still cost you many thousands of pounds. You will either have to buy your freehold informally or via the statutory route.

You will find yourself  in exactly the same position you are currently in, except you will have paid your freeholder twice! Once to move from a doubling ground rent to one linked to RPI and again to buy the actual freehold of your home!

Freeholders are a pretty clever bunch aren’t they?

Conclusion

I agree that the legal process may be daunting and perhaps looks uncertain. This puts many people off going down this route. I fully understand why the informal option can appear to be easier and less fraught.

However, please be aware that if you go down this informal route you will pay much more than you should do for your freehold, perhaps £25,000 more! Your freeholder will retain clauses that continue to favour themselves and will keep generating money from you well into the future.

The very best option you have to get out of this leasehold scandal is to buy your freehold using the statutory legal process which is there to protect you. If you can do this at the same time as some of your neighbours you will have strength in numbers and it will cut down on the costs.

Good luck.

For more information click here

Filed under: Uncategorized, , , , , , , ,

Some questions raised by the Taylor Wimpey offer to spend £130m to rectify the leasehold house scandal

fullsizeoutput_653.jpegLast week Taylor Wimpey announced it has put £130m on one side to convert all the houses it sold with ground rents that doubled every ten years into ground rents that are linked instead to grow in line with the Retail Price Index (RPI).

Later that day Peter Redfern, the Chief Executive, took part in a ‘Q1 2017 Earnings Conference Call’ to explain Taylor Wimpey’s financial statement and its actions to rectify the leasehold houses scandal it created and answer any questions the participating financial analysts had.

On examination of these statements I have some serious questions that need to be addressed by Taylor Wimpey. On the one hand it could be said that Taylor Wimpey did not need to offer this and it is being decent because it ‘feels it’s the fair thing to do’ and I sincerely hope that is true.

However, having worked in the leasehold sector for the last 10 years, I have become very wary about deals that look ‘too good to be true’ and I am suspicious of this offer as I find many of the comments made by Taylor Wimpey ring serious alarm bells in my head.

Mr Redfern made this statement:

“What we’ve announced today is that we will do a Deed of Variation for those customers which requires a negotiation between us and the freeholder which we’re undertaking on the customers’ behalf.”

We must wonder why Taylor Wimpey took this action, although it is clearly the first step in the right direction, it is not what its clients asked it to do nor do they want it.

Not a single person I have spoken to wants to move from a doubling ground rent to a slightly less onerous ground rent linked to RPI with all the same leasehold clauses and unfair payments to the freeholder for pointless licences and permissions.

What the clients of Taylor Wimpey want is to be able to purchase the freehold of their homes and free themselves from the spider’s web of leasehold.fullsizeoutput_657.jpeg This is a legal right they have.

Mr Redfern went on to say:

“We’re not releasing a number and therefore, a cost for lease of the actual provision, it includes the costs of the process and we think it is calculated on a very prudent basis.”

So it refuses to release the number of leasehold houses affected in this, nor how much it will be paying the freeholders in compensation. This seems a very strange state of affairs and not one that will fill any leaseholders with confidence.

This is a secret deal being done between Taylor Wimpey and the freeholders, the details of which are hidden. Was it not this very same secret deal originally done between them both that meant the leaseholders found themselves trapped in this leasehold hell?

They say these terms were “calculated on a very prudent basis.” Prudent for whom? As we know, many freeholders were asking leaseholders for in excess of £40,000 to buy their freehold if the ground rent doubled every ten years. It seems Taylor Wimpey has found a way to force the freeholders to accept much more modest figures for this deed of variation, but it refuses to share this information. Why?

Without any doubt whatsoever, the freeholders would only readily agree to this unorthodox suggestion if there was something in it for them. What is that something? They don’t need the cash; they need the long-term investment that is your home.

Surely a better option was to use this ability to force the freeholders to accept a more reasonable figure and then facilitate the leaseholders affected to be able to buy their freeholds, as that is what they want?

So that raises the question who does this deal on the table really benefit, the freeholders or the leaseholders?

It would benefit freeholders is if the ground rent in these doubling terms were to double to the first increase as part of this deal. I have seen this on every deal of this type I have seen already, which means the ground rent would be £590 pa linked to RPI.

If this is part of the deal they are suggesting it means each and every house would now have an onerous ground rent on their property, forever! The freeholders will retain their profit as they collect this ground rent as well fees for licences and permissions.

Leaseholders who then plan to move straight on to buy their freeholds from the freeholder once this deed of variation had been carried out would find themselves back in the position they are now in that of trying to negotiate to buy it with an onerous ground rent clause and it will cost them many thousands of pounds to do it. They will have to pay the same two sets of legal fees and may have to go to the Tribunal to force the freeholders to negotiate fairly on the cost of doing all this.

The leaseholders may find themselves in only a slightly better position than they are in now whilst the freeholders would be very happy having been paid twice for their freehold and Taylor Wimpey would be blameless from a PR standpoint.

This raises another serious question, Mr Redfern continued:

“The customers themselves have legal rights and so there are other ways at arriving at a valuation. So we’re not sort of — just got 1 lever to pull with those freeholder conversations”.

fullsizeoutput_65d.jpegThe customers have all THE legal rights, whereas Taylor Wimpey have no legal rights whatsoever to negotiate this on behalf of the leaseholders. Therefore, these negotiations will be informal negotiations, which means all leaseholders will have to step outside the legal protection they have buying their freeholds under the statutory route.

An informal deal is a ‘take it or leave it’ deal as there is no legal mechanism to remove any clauses that seem onerous. For example, we have seen deals of this nature before where there is a clause inserted that states that the person signing this deal cannot proceed to buy their freehold for a certain period of time. If that were the case here, you have no legal mechanism to remove it.

The same would be true if the terms of the deed of variation states your ground rent will double firstly, you have no legal mechanism to remove it before you sign.

There could be other clauses included in this deal like a time restriction on when you can then proceed to buy your freehold, a clause that could indemnify the developer against any future litigation or even non-disclosure agreements.

I have no idea if these types of terms will be included in the deed of variation at all, I include the various scenarios I regularly see in these deals simply to illustrate just how vulnerable leaseholders are entering into this kind of informal deal outside of the legal protections of offered by statutory freehold purchases.

One thing is certain though. Part of the deal will not include the removal of the huge fees leaseholders will have to pay for the permissions and licences that are included in their current leases.

Another worrying thing here is that Taylor Wimpey is only offering this deed of variation to customers who bought their leasehold houses from them directly, whereas the people who bought these houses from the original purchaser are excluded from this deal.

That does not seem fair at all. These houses still have the same unfair ground rents and terms as those who bought directly from Taylor Wimpey. If a car make was recalled because it had a certain fault, the car manufacturer would recall all the cars not just those bought directly from the manufacturer.

Even more worrying about this unsolicited deal being offered is that it infers a tacit agreement by all those who take up this offer, that leasehold houses with ground rents linked to RPI as somewhat acceptable and would possibly mean any future litigation against them would not be possible.

It also means that when those who accept this deed of variation will have nothing to complain about nor any recourse against Taylor Wimpey when they try to but their freeholds at a later date.

If this deal is accepted, the freeholder could be left sitting pretty with their long term investments and a nice compensation pay off from Taylor Wimpey. Taylor Wimpey get to walk away from the whole thing with its head held high and any chances of future litigation receding.

As ever, it’s the leaseholders left in a position that is little better than the original position they were placed in by these onerous lease clauses which we written and put in place by the developer to earn extra profit.

Everyone wins except the leaseholders and this is the very story told over the last few hundred years in the history of the leasehold system in this country.

It would be tedious for me to pick through every single point in Taylor Wimpey’s statement. You all now know how this works and what you all went through. That said there are some other worrying noises that could indicate intent and what the developer is focusing on.

Mr Redfern said:

“We haven’t had a single legal claim, including on these doubling ground rent provisions. Because people did have independent legal advice.”

This ignores the fact that the ‘independent’ legal advice was obtained from named solicitors recommended by the developers themselves for reduced fees and a speeded up service. It also ignores that hefty discounts were offered for ‘quick sales’ by the developers.

It also ignores the fact that since this leasehold house scandal erupted, Taylor Wimpey has simply told everyone to sue their conveyancing solicitor, thus neatly deflecting their blame in all this.

Mr Redfern then said:

“The contract (the lease) is very clear….. this isn’t a case and we might feel differently about it if the lease terms were hidden, sort of split between 3 clauses and really difficult to understand. They’re not, they’re very straightforward.”

fullsizeoutput_658.jpegThese leases are as complex as we have ever seen and the vast majority of ground rent clauses are exactly split into three sections meaning for most people it is impossible to glance at what their ground rent is and when it increases. I have been sent hundreds of pleas from people asking me to try and identify just what their ground rent is and how much it increases.

He then says:

When we look at RPI leases and the sale of leases on houses historically, people knew they were buying a leasehold house.

Most did, but at point of sale they were told by Taylor Wimpey salespeople that they could buy the freehold of their homes for a few thousand after two years. This disarmed many of the purchasers who would otherwise been on full alert regarding the detail of the leasehold houses who mistakenly believed that the freehold would be theirs for a modest fee so why worry?

The freeholds were then sold to professional ground rent investors without Taylor Wimpey’s leaseholders being informed or consulted about it, nor offered a chance to purchase first. At that point the terms of the leasehold houses became important to everyone, but by then it was too late.

Does this professional spin put on the current leasehold house scandal and Taylor Wimpey’s role in it make us feel more confident or less confident in their role in this cloudy informal deed of variation being offered?

As I mentioned at the start of this examination we hope with every fibre of our being that this offer is genuine and will help those most affected by this scandal but would urge extreme caution before rushing into any informal deal made between Taylor Wimpey, the creators of your current situation and the professional freeholders who are currently benefitting from the deal done with your house builder.

Until I have the details of the deal being offered I cannot possibly advise fully on but experience has taught me to hope for the best and plan for the worst in all leasehold matters.

A much better deal would be for Taylor Wimpey to help you all to buy your freehold under the statutory process created to offer leaseholders protection under law. This for me is the only acceptable option and Taylor Wimpey should be asked why this is not an option on the table.

To join the National leasehold Campaign page click here and to check the latest news please follow the Leasehold Knowledge Partnership and support their tireless work.

The quotations were supplied by:

https://seekingalpha.com/article/4066408-taylor-wimpeys-twodf-ceo-peter-redfern-q1-2017-results-earnings-call-transcript

Filed under: Uncategorized, , , , ,

The leasehold houses scandal and what you can do about it

Why are leasehold houses called a ‘scandal’?

imagesThere is no reason whatsoever why houses should be sold as leasehold, they should have been sold as freehold properties. Worse still is the fact that they have been sold with high ground rents that double every 10 years, 25 years or are linked to RPI (the retail Price Index)

The majority of leases pertaining to leasehold houses we have seen have also onerous fees that must be paid to the freeholder for licences and permissions included in the clauses of the lease.

Many of the tens of thousands of people who have bought leasehold houses from developers also feel that they were not correctly advised at the point of sale. I have spoken to hundreds of purchasers who tell the same story that at point of sale the salespeople working for the developers told purchasers that they would be able to buy their freeholds for a few thousand pounds once they had owned the property for the required two years. The vast majority however have found that their freeholds have been sold to large institutional ground rent investors without ever being consulted and these investors are now asking for £40,000 to sell them the freehold of their homes.

There is also huge anger from the purchasers that the solicitors they paid to advise them on the purchase of their houses did not advise them correctly about the implications of the ground rents and terms of the lease. Many contracts I have seen from the developers have directions that the solicitors the purchasers must use for the conveyancing should be “Nom Sol Only” i.e the solicitors named by the developers.

It really doesn’t smell right does it?

Why were the houses sold as leasehold in the first place?

Developers are saying it was just the ‘custom’ imagesin that area to sell houses as leasehold but that is simply not the truth.

Except for a few very rare circumstances there is no reason at all that a house should be sold as leasehold except to make the developer more money. Even in those rare cases where houses must be sold as leasehold due to restrictive covenants on the land, there is no reason to make the ground rent anything but a peppercorn and less reason to include onerous clauses in the lease.

If you look at the additional revenue it brings you can easily see why the developer is tempted. We have seen many house sold to ground rent investors for between £7,000 £16,000 per home or more. This additional income brought in many tens of millions of extra ‘profit’ for the developers.

For many of the developers to get this lovely extra ‘profit’ they have willingly sold their clients, the purchasers of their houses, into huge future debts from the ground rent they have to pay, the monstrously disproportionate fees to purchase their freeholds, regular fees for licences and permissions they require from their new freeholder and service charges etc.

A cursory scratch below the surface shows many of the directors of the house developers were also directors of many of these professional ground rent investors, the smell just gets worse! A cynic might come to the reasonable conclusion that if the leases were intended to have been sold to the home owners all along, why would developers include high ground rents and onerous clauses in the lease at all. Unless of course that the intention was always to sell to ground rent investors all along?

Although the developers have done nothing illegal in selling your houses to a third party professional ground rent investor, was it a moral thing to do? Is it a good way to treat a client of yours? Was this a fair thing to do?

I say categorically not!

Why do ground rent investors buy the freeholds?

For money and a lot of it too!

They make money from:

  • The ground rent you pay every year which is pure profit.
  • Charging you an admin fee to chase late ground rate payments.
  • The money they get when people want to buy their freeholds.
  • Any applicable sub-letting fees.
  • For the various licences and permissions, they can charge you.
  • Sometimes on building insurance.
  • Sometimes on service charges.

So, what are your options?

OPTION 1 – You may be able to sue your conveyancing solicitor for professional negligence.

img_5880.jpgAs you already know, it is not easy to sue a solicitor, after all they do this for a living. It is not enough to believe or feel that you were inadequately advised, it is all about how much proof you have.

Your first job is to get a copy of your file from the solicitor who advised you when you bought your house. You can do this yourself by simply writing to your solicitor or you could instruct a solicitor to do this for you.

Your solicitor has to provide you with this report but there is no legal timeframe for them to do this by.

What are you looking for in this file?

The most important document is something called your “Report on title’. This is the report on the pros and cons of you buying this property. A report on title can be two pages to 15 pages long.

This is the document that could give you the proof you need to sue your conveyancing solicitor.

The most important bit of your file to look for is the part where it explains the ground rent ground in your lease and the implications it will have for you in the future.

You will also need to check all the documents in your file too to see if any other documents your solicitor provided you in your report included advice on the ground rent of the lease.

What are your chances of suing?

This is very subjective and not meant to be used as an absolute guide to you chances of success of suing but it’s a fair guide.

If your file does not even mention your ground rent or their implications you could have a very good chance of suing.

If your file shows the solicitor simply states your ground rent is “£250 per annum” with no other advice you may still have a good case to win.

If it says “Ground rent is £250 and doubles every 10 years” but does not other any other advice you may still win but a solicitor will try to assert they did advise you.

If your file says “Ground rent is £250 doubling every 10 years and this could be bad” then your chances of success are reduced even further as the solicitor will insist they had properly advised you.

If it says “Ground rent is doubling every 10 years and might be bad so advise you get valuation on advice and advise on implications” then the solicitor has advised you about the ground rent and if you did not take a valuer’s advice then I’m doubt you would have any kind of case against them.

It is also worth carrying out the same process on the valuer you used to establish the market price for your home. Did they advise you on the onerous ground rent clauses? What does their file say?

Once you have looked at the pack, if you feel you have a case you will need to instruct a solicitor to sue them for professional negligence. There are many solicitors who would do this for you on a ‘no win, no fee’ basis. You need to ensure that the solicitor you choose should have a proven track record of successfully suing large solicitors for professional negligence and not just pick the cheapest or most eager to work for you.

Also keep in mind that the test for professional negligence is a two-part test.

  • The legal test – conveyancing solicitor had a duty of care which was breached causing loss.
  • Layman test – Had we been told we never would have bought the house (or would have negotiated better terms)

OPTION 2 – You can buy the freehold of your home

Broadly speaking there are three different ground rent schedules I have seen these leasehold houses.

  • Doubling ground rent every ten years. This is by far the worse one and is considered onerous.
  • Doubling every 25 years. This is not as bad and is not considered onerous.
  • Linked to RPI. This essentially means the ground rent you pay is linked to inflation and technically you pay the same amount each year forever more and this is also not onerous.

You need to keep in mind however that all these ground rent options are totally needless and exist for the sole purpose of creating an asset class for the ground rent investors.

Under the 1967 Leasehold Act you have a legal right to force your freeholder to sell you the freehold of your home if you have owned your home for more than two years.

Why should you bother?

The benefits are:

  • No more ground rent.
  • You now own your house and the ground it sits on.
  • No more sub-letting fees.
  • No more licences or permissions to pay.
  • No more dealings with your freeholder.

How much should it cost you to buy the freehold of my house?

How much it should cost is a three-part calculation2017-02-06-9-08-23-515-_93907167_katie-kendrick-1_5000x500 but only one of these calculations is applicable to most of you as you have long leases.

So, to work out how much it should cost we need to work out just one aspect of your lease. How much is the total ground rent you owe your freeholder for the remainder of your lease?

Many have ground rent doubling every 10 years for 5 multiples and remaining at that level for the remainder of your lease, these are by far the worse of the ground rent schedules.

If your ground rent is £295 on these terms the total ground rent you have been signed up for is 4.6m over 999 years. If it is a 250-year lease, then the total amount is ‘just’ a 1m!

Luckily for us, that is not the calculation because we are able to take into account the effect of inflation. As a pound today will be worth much less in 100 years from now.

The key point of this calculation is the percentage we use to do this calculation; it’s called the capitalisation rate. The higher the rate the better for the leaseholders, the lower the rate the better it is for your freeholder.

We have seen many valuations from people wishing to buy their freehold directly from their freeholder. In every one of these the freeholder is quoting a 5% capitalisation rate.

What does that mean in pounds and pence?

If your ground rent is £295 doubling every 10 years is around then the cost of buying your freehold is around £26,000 based on your freeholders 5% cap rate.

If you changed the capitalisation rate to 6% then the cost to purchase your freehold would be around £19,000. If it was 7% then you would be looking at around £11,000

For a house with a ground rent of £195 that doubles every 25 years or linked to RPI it would be £6,625 to buy your freehold based on a 5% cap rate. Around £4,500 for a 6% and £3,200 on a 7% cap rate.

So as you can see, the rate used makes a huge difference to you.

To put it in perspective the capitalisation rates we regularly agree in London are between 6-7% day in day out. Your freeholder is staking out an aggressive stance suggesting 5%. I passionately believe that if there were a group of you acting together you would win this battle.

So what is the process of buying your freehold?

  1. First you need to establish a fair price and work out if you can afford to do it.
  2. Instruct a solicitor to Serve a Section 9 Notice on your freeholder.
  3. You are not required to make an opening offer price.
  4. Freeholder can ask for a 3 x multiple of your current ground rent.
  5. You don’t need to put another offer price in the Notice.
  6. Freeholder has two months to respond but they don’t have to.
  7. Your valuer will start to negotiate with your freeholder on the cost.
  8. You can agree very quickly on the price if both agree.
  9. You have to make the final decision to accept the price on the table.

If your freeholder will not negotiate you will need to take them to the First tier Tribunal.

  1. It costs £100 to apply but can be done as a group.
  2. It costs £200 to attend but can also be split across a group.
  3. You will need a valuer and possibly a barrister to represent you.
  4. The court will decide on what is fair based on the evidence.
  5. The cap rate is the only point of contention.
  6. They may appeal.
  7. It is still worth it if you are a group.
  8. Your freeholder pays their own fees.

If possible you should do this at the same time with a group of your neighbours to make this battle affordable. Based on experience this Tribunal battle may cost you between 6-8k. An awful lot of money if you act alone. If you have a group however:

  • 10 people = £600-800 each
  • 20 people = £300-400 each
  • 30 people = £200-270 each
  • 40 people = £150 -200 each
  • 50 people = £120 -160 each

It sounds like a real pain and it is but it is better than handing £40,000 to your freeholder for your freehold as you could save many tens of thousands of pounds!

Surely, the best thing to do is to approach your freeholder directly and negotiate with them?

I see that a lot of people are doing this. It could be possibly the worse thing to do though, it would be like getting foxes to babysit your chickens and hoping the all play nicely.

Your freeholder has bought your freehold for one reason and one reason alone, to make as much money from you as they possibly can. Do you really think they are going to negotiate fairly with you and give you a good price?

Why would they?

It is also very very important to know that if you try to buy your freehold ‘informally’ for your freeholder you step outside any legal protection you would have if you acted inside the ’67 Act’. Your freeholder can negotiate the very best deal for themselves on the freehold transfer and there is nothing you can do to remove anything from the contract you don’t like, it’s a take it or leave it deal.

For example, we have seen many clauses in the lease where a leasehold house owner is required to pay £300 per room to their freeholder for ‘permission’ to fit a new carpet or bigger costs for permission to carry out alterations to your home. On many informal freehold purchases we have seen that are done directly with the freeholder we see them keeping these fees for the permissions in the transfer.

So you will over pay to the freeholder on their value and find that after you will still need to pay fees for permission to change a carpet etc! Don’t do it!

OPTION 3 – Buy your freehold as part of a group using your statutory legal right under the 1967 Act. 

The very best thing you can do is to buy your freehold as part of a group with your neighbours acting at the same time, the bigger the group the more money you will save. There is an economy of scale when you act as a group but it will also give you formidable  negotiating power against your freeholder when trying to agree a fair price.

How do you choose which Solicitor and valuer to use?

It is tempting to choose the cheapest ones based on quotes you get from the various professionals but with the leasehold world cheap is not always the best option for you, you will only have one chance to get this right and you don’t want to end up in an even worse situation after you complete on the purchase of your freehold because you chose the wrong valuer or solicitor.

I strongly suggest that you choose a solicitor or valuer who are members of ALEP as all of these have had to prove they have the expertise to work for you in freehold purchases and are generally the best in the industry at what they do.

How acting as part of a group is the best way through this.

It will save you money on:

  • The valuation fees involved.
  • The solicitor’s fees involved.
  • The actual price you pay for your freehold.
  • Sharing any Tribunal fees.

This is the only way you will end up paying a fair amount for your freehold.

fullsizeoutput_5d1Through no fault of your own you have found yourselves trapped in the spiders web of leasehold where very clever groups of people now have a financial interest in your homes and see you as a nothing more than a ‘revenue stream’ for them and their investors.

This is very clearly a very morally bankrupt situation and it has caused many thousands of people who bought these house untold stress and heart ache. However, your developers have done nothing illegal in selling your freeholds and the ground rent investors have done nothing illegal in buying them. This is the awful world of leasehold!

You will need to skilfully use the law to free yourselves from the grasp of these faceless investors and take control of the financial destiny for yourselves and your family.

It is therefore essential that you don’t rush into the wrong route to rectify this or choose the wrong professional to help you to do it. Do your research well, take your time, question everything, trust no-one and make sure you fully understand your options before you act.

I hope this article has helped you a little and I wish you all the very best of luck.

©Barcode1966 – 2017

Filed under: Uncategorized, , , , , , ,

The truth about the Rentcharge scams and what you can do about them

What is a Rentcharge?

s-l300In the late 19th and early 20th century Rentcharges (often called Chief Rents in Manchester) were a popular way for land owners of selling land to developers at a reduced fee. In the stylee of the leasehold world, the developer would buy the land for discounted fee and the land owner who was selling, would introduce an annual Rentcharge that they would receive from the purchasers of the properties forever more.

The rentcharges were for an annual set fee which at the time was worth having but over the years’ inflation has made these annual payments worthless. Typically, Rentcharges tend to be from £2 to £10 per year, so not worth even worrying about, right? Well, a recent Upper Tribunal decision shows that you should be very concerned about them.

The law around Rentcharges

The law around these archaic charges are complex but it is the legal remedy given to the owners of these rent charges, if the charges were not paid, that is so concerning.

Firstly, it is not mandatory that owners of these Rentcharges should register the ownership of them on the Land Registry which makes finding out who owns yours a task in itself.

There is no legal obligation for the owner of your Rentcharge to make a formal demand to to you for the payment of them, instead the obligation is on you to pay them each year. I’m sure you can see the issues surrounding them are becoming clearer already.

In fact, the obligations placed on a property owner who owes a Rentcharge include:

“to raise and pay the annual sum and all arrears thereof due or to become due, and all costs and expenses occasioned by non-payment of the annual sum, or incurred in compelling or obtaining payment thereof, or otherwise relating thereto, including the costs of the preparation and execution of the deed of demise”

So not only do you have to pay the Rentcharge but also “all costs and expenses” incurred if the payment is not paid. There is no legal obligation on the owner of the Rentcharge to make these “costs and expenses” reasonable.

What is really worrying is disproportionate remedies given to the holder of the Rentcharge should arrears occur.

Firstly, they have the “right to take possession” (forfeiture) of your property or they have the “right to create a trust of a lease of the land” to pay off the arrears (explained below).

The case of Roberts v Keegan

So let’s have brief look at the recent case which highlights how important this can be to a home owner who has a Rentcharge on their property.

Mr Keegan had a Rentcharge on his property of £2.75 a year. In 2003 a company called Morgoed Estates Limited, which is run by a Mr Jonathan Howard Roberts, became the Rent owner.

Margoed sent out demands to Mr Keegan but the letters were addressed to “The occupier” and so chances are Mr Keegan binned them as we all do when we receive junk mail.

Margoed then Served a possession order on Mr Keegan’s property!ANOB_cartoon_300_250

Mr Keegan then phone Mr Roberts (the call was described as somewhat contentious, I’ll bet!). Mr Keegan demanded some proof that Mr Roberts did indeed legally own the Rentcharge.

Following the heated call Mr Keegan was sure it was agreed that if he paid the arrears (but not the £60 ‘admin’ fee) it would all be sorted out.  Mr Roberts, however, did not recollect agreeing those terms. Back and forth correspondence ensued.

Then in 2005 Morgoed exercised their s121(4) power and granted themselves a lease for a term of 99 years on the property said to “Demise to secure payment of Rentcharge”.

In simple terms this lease granted and registered on the Land Registry acted as a charge on Mr Keegan’s property which meant he could not sell it nor re-mortgage it until he had negotiated a fee to pay it off. His property was now being held hostage for an £11 ‘debt’.

Mr Keegan took his case to the First tier Tribunal to remove this charge and won the case and then Mr Roberts appealed and the Upper Tribunal overturned the decision and Mr Roberts and Margoed inexplicably won.

How important are Rentcharges?

As you can see a £2.75 debt could see your property held hostage and your only escape is to negotiate with the sharp owner of your Rentcharge to release yourself. Keep in mind that there is no legal obligation for the charges applied by the person who owns your Rentcharge to be reasonable.

This is not the first case Margoed has taken to tribunal involving registering the charge leases on properties with Rentcharge debts in this manner (click here) so one can only assume it is a business model of theirs. Either way a cursory Google search of Morgoed Estates Limited and Mr Jonathan Howard Roberts himself will quickly lead you to your own conclusions.

What can you do about it?

In 1977 the Rentcharges Act abolished the creation of all new Rentcharges (except for a couple of cases) and also said that all Rentcharges would expire in 60 years. (So by 2037).

fullsizeoutput_5baThe case above shows that it may not be prudent to wait that long though and the good news is that it is very easy to pay off your Rentcharge now and get rid of it once and for all.

The DCLG have very useful information on how to buy it out and their forms are very easy to use and it will cost you 16 times your annual Rentcharge to do it.

Also ridding your title of a Rentcharge is a good way of clearing up your land title for any prospective purchasers of your property and their solicitors.

With the details of the case above and the knowledge that many “investors” of Rentcharges may be looking to extract as much money as possible from their “investment” before they expire, the time is now for you to get rid of this legal nightmare once and for all.

Cartoon used from http://www.addinghamcivicsociety.co.uk/the-tip-of-the-iceberg/

©Barcode1966 – 2017

Filed under: Uncategorized, , , , , , ,

2016 a leasehold review – The worst year for leaseholders ever?

fullsizeoutput_4ccThis is a review of some of this year’s developments and how it effects leaseholders, unfortunately it’s not happy reading. It is no exaggeration to say that 2016 has been the worse year to be a leaseholder in recent memory, there is very little to be optimistic about.

Each development has made it more difficult to exert the legal rights given to leaseholders by legislation as well as making the costs of doing so rise significantly.

Court fees

This ridiculous idea was first mooted in 2015 to bring in application fees for the First tier Tribunal to be paid by the applicant and it eventually come into force in 2016.

Now, when you apply to the Tribunal, you must pay £100 and a further £200 to attend a hearing. As the vast majority of applications have to be made by leaseholders against unreasonable freeholders this extra financial burden will be borne mostly by leaseholders.

It could have been much worse though.fullsizeoutput_4c7

The second part of the governments fee plan to pay for the court system was to also include a flat fee of £2,000 per application to be paid by the applicant.

Luckily we were given the chance, through ALEP, to be able to talk to members of the DCLG before they made this final.

I was able to explain in detail how disastrous this would be to leaseholders and how much power it would put in the hands of freeholders enabling them to act even more unreasonably in negotiations.

Thankfully, the DCLG agreed to drop this second part to their proposal of increased fees.

The ‘Mundy’ decision

The much anticipated decision in the Mundy case was handed down in May this year and it has caused a seismic shift in the landscape of lease extensions.

The case, which is eye wateringly complicated, was trying to decide a method of calculating how the short lease of a property, of anything below 80 years, effects the value of it.

The behemoth that is the Wellcome Trust spent a fortune in discrediting Parthenia’s valuation model that looked to make the calculating of this loss of property value scientific and less partisan (and ergo fairer to leaseholders). ‘Accepted’ relativity graphs have always been paid for and pushed through the courts by wealthy freeholders to benefit their interests and this case was no different.

Click here to read more details of the case but it should come as no surprise that the uber rich Wellcome trust won the case adding millions to the value of their portfolio.

This has meant that the cost of extending a lease that has fallen below 80 years has risen dramatically. For example, a flat worth £400,000 with 70 years left to run on the lease will now pay around £8,000 more for a lease extension after this decision.

Good news for the already bloated freeholders but it is a wholly unfair result for leaseholders who find themselves caught in the leasehold trap.

At a valuers seminar I attended a couple of months ago, the normally dour grey-suited freeholder’s valuers were positively clicking their heels and dancing with glee at the thought of all these additional unearned fees.

When someone in the audience pointed out to the valuers on stage how unfair this Mundy decision was to leaseholders, an infamous valuer working for a large and difficult freeholder smirked and said “Life isn’t fair.”

As well as making freeholders even richer this case has caused a hardening of the freeholder’s stance across the board. This means leaseholders will have to attend the Tribunal more often to argue the unfair price demanded and pay both the application fee for doing so as well as huge fees of the professionals ‘defending’ them.

CONSOLS replace with the NLF rate
fullsizeoutput_4cdIn another complex development the government cancelled CONSOLS. This was an index used to value, amongst other things, the premium due to a head lessor for the loss of any ground rent due to them during a lease extension.

They replaced this with the wholly unsuitable National Loan Fund (NLF) which is a daily spot rate calculated on the day the Notice is Served. At its introduction the NLF rate was already considerably lower than the CONSOL rate and it continues to fall in line with the current, unprecedented, deflated interest rates.

This has real financial implications for leaseholders who have a head lessor on their property which has an element of the ground rent due to them. In a case we dealt with earlier this year the amount due to the head lessor under the old CONSOLS rate would have been £4,000 this was calculated to be £12,000 at the time of Notice Serving in September 2015. If we had Served Notice today, the amount due would be closer to £20,000!

Rule 13 wasted costs

A recent decision in the ‘Willow Court v Ms Alexandra’ case tried to make clear the qualifying criteria affecting anyone who wished to apply to have their legal fees paid for by the party who had brought an unnecessary and vexatious case against them at Tribunal.

Although the decision made it clear that this is not something this could be applied for automatically if decision went in your favour, it was only to be used only in ‘exceptional circumstances’.

The decision also stated that these application for costs should not “become a major case in its own right”

The truth is however that early evidence points to freeholders applying for these wasted costs every time they win a case to try to claim back their legal fees but more importantly to ‘teach’ leaseholders a lesson for daring to challenge freeholders in court and deter other leaseholders for going down that same route.

Right to manage by block

There was another inexplicable decision which earlier this year “Triplerose Ltd v Ninety Broomfield Road’ which seemed to go against the very spirit of the Right to Manage legislation.

This new ruling means that a right to manage application must now be done on a block by block basis. If you live on a development which contains four small blocks of flats all owned by the same freeholder, you must now make four separate applications for the right to manage. That’s four separate companies, four sets of directors and, obviously, four sets of fees and costs.

Freeholders already have a considerable collection of ruses to frustrate leaseholders who wish to take control the management of their own buildings, this decision has just added another powerful weapon to freeholders unwilling to let go of the cash cow that is management.

Ground rent scandals

This has been going on for a couple of decadesfullsizeoutput_4cb but it has certainly become big news this year with three different ground rent scandals hitting the headlines.

The first was over dodgy informal lease extension deals offered at Blythe Court in Birmingham. The freeholder there is Martin Paine, of whom Sir Peter Bottomley said ‘is a crook who is turning sleaze in leases into an art form’ at the recent debate on leasehold in Westminster.

Mr Paine sold informal lease extension of 99 years with ground rent doubling every 10 years. On completion, the leaseholders found the 99 years started from when the lease was originally granted, so the length of the lease remained the same but the new ground rent due was £8,000 a year making the flats worthless. Read the full story here.

Taylor Wimpey found themselves with a mountain of negative PR when it was brought to light that they had been selling houses as leasehold, instead of freehold, for the sole purpose of making themselves more profit while plunging their unsuspecting clients into a life time of unnecessary ground rent debt.

The telegraph also ran a story which we have been involved with which was a leasehold flat in Islington where grounds rents starting at £250 per year per flat would grow over the term of the 999-year lease to… £68,719,476,736,000 a year! A bargain.

So what does 2017 have in store for leaseholders?

I hate to be the bearer of more bad news but it looks like the freeholders are going to try to push their advantages even further next year using lower interest rates as a smoke screen to mask their naked greed.

In late 2016 we are already seeing the ‘professionals’ advising the large freeholders to try and argue lower capitalisation rates, which are used to calculate the ground rent due to a freeholder to compensate for the loss of ground rent, than those currently accepted.

An even bigger battle is brewing over the deferment rate which was set by ‘Sportelli’ in 2007. The deferment rate is used to calculate the amount due to a freeholder to compensate them for the reversion of a property. The lower the rate, which is currently 5%, the more you will have to pay the freeholder, a 1% reduction in this rate would have huge financial consequences for leaseholders across the country.

Potentially these will be one of the battle grounds of 2017 as bloated greedy freeholders look to get paid even more for a lease extension from their legally captivated victims the leaseholders.

Is there any good news at all?

unfairFor the first time in over a decade those fine people at the Leasehold Knowledge Partnership were the driving force to secure a debate on leasehold in Parliament a couple of weeks, ago which was a fiery damnation on the state of leasehold in this country.

To finally have political appetite looking at the injustices of this feudal system is a very good thing and may be the tool to fight the coming battles from greedy billionaire freeholders wishing to push their advantages.

With the political appetite comes serious interest from the press looking to expose even more of the dodgy dealings of these wealthy freeholders who live in the shadows while carrying out legal extortion on many millions of leaseholders. I have spent more time talking to the press about various leasehold scams in these last two months than I did for the previous eight years combined. There are some big exposés coming in 2017!

Finally, leaseholders themselves are becoming better informed and educated about leasehold abuses. If you find yourself in an unfair situation with your freeholder, make some noise about it! Contact your local MP and let them know, write to the papers, contact LKP and join the growing army of people demanding that this thousand-year-old feudal system should be ended once and for all.

©Barcode1966 – 2017

Filed under: Uncategorized, , , , , , , , , , , , , ,

The Truth About Virtual Freeholds

‘Virtual freehold’ has fast become the ubiquitous term that is used to describe a leasehold property with a long lease of, usually, 999 years. You regularly see it used in estate agent’s descriptions, developer’s brochures and auction houses.fullsizeoutput_479

The term suggests that you don’t need to be afraid when buying a leasehold property. It implies that this property won’t share the same nightmarish financial consequences that can exists with normal leasehold properties and that there is a good chance that this freeholder is ‘honest’ to grant you such a long lease in the first place.

Buying a ‘virtual freehold’ property can become a real nightmare though with terms so onerous it can seriously affect the future salability of your property and here’s why.

How big is the problem?

An excellent article which appeared in the Guardian, 29 October 2016, entitled ‘The new-builds catching house buyers in a leasehold property trap’ exposed the scandal of Taylor-Wimpey selling leasehold houses. These houses were being sold as ‘virtual freeholds’ with a 999-year lease but with onerous ground rents clauses which doubled regularly making the houses difficult to sell as the ground rent due per year becomes disproportionately high.

This is just the tip of the iceberg though.

For many years we have been aware of this very same tactic being used on tens of thousands of newly built leasehold flats across London.

For example, we helped a group of flat owners buy the freehold of their flats in Islington a couple of years ago at a newly built block. The ground rent clause was £250 a year doubling every 25 years for 999 years. We calculated the ground rent due for the last 25 years of the lease was £160,000,000,000 a year, a bargain!

Why do developers grant 999-year lease with high ground rents?

Developers generally sell the freeholds of their leasehold buildings before building work starts to professional ground rent investors. These investors want to make as much profit as possible from these freeholds so they request certain clauses are included in the leases before they buy. The developer will then also be able to sell the freehold for a much higher fee if they agree to include them.

For example, if a developer builds a block containing 200 flats and includes a standard ground rent clause that states the ground rent will be £100 a year doubling every 25 years, the total combined ground rent of all the flats that would be brought in over the first 100 years would be £7,500,000.

If they included a clause that states the ground rent will be £350 a year doubling every 25 years, the total combined income rises to £26,250,000! It’s easy to see why they do it.

The reason the leases are granted for 999 years though, is a stroke of pure evil genius from toxic unscrupulous freeholders. This is done to totally remove the motivation for the flat owners to ever group together and buy the freehold of their build meaning the freeholder loses their investments and feel sad.

fullsizeoutput_477It is done to ensure the freeholders retain permanent ownership of the property and it allows them to make lots of money from their captive leaseholders.

That’s because there are other ways a predatory freeholder can make money from leaseholders who have bought flats with these lease terms and it’s like shooting fish in a barrel for the freeholders.

Other ways freeholders can make money from ‘virtual freeholds’

A knowing freeholder can make even more money from service charges which tend to be high on new builds. Closely managing a building and having a separate company that carries out the work can be a gold mine for them. A cursory search on Google will reveal a depressingly high number of reports and court cases documenting these abuses.

Generally, these leases will also give the rights to insure the building to the freeholder who can then recover these costs from the leaseholders. We regularly see freeholders recommending a poor quality of insurance with high excess fees while they pocket, in our experience, 50% of these costs as ‘finder’s fees’.

Fees for licences and permissions can also bring in a considerable amount of profit to freeholders. We regularly see permissions to sub-let on these properties costing more than a thousand pounds a year. The cost of the permission legally required to sell a property from a freeholder, can often dwarf the total legal fees paid for conveyancing the sale of the property!

Leasehold houses too can see the cost of permissions being ridiculously high, we were speaking to the owner of a leasehold house recently who was being asked to pay the freeholder £15,000 for permission to build a conservatory on his own property!

What can you do about it?

fullsizeoutput_47bIt is assumed that most leaseholders wanting to buy a nice new shiny leasehold house or flat will probably not fully grasp the serious financial implications of owning a ‘virtual freehold’ property with onerous clauses until it’s too late.

Therefore, the only risk for developers in acquiescing to the freeholders demands for onerous ground rents and lease terms, is if the public find out and make a noise about it.

I’m sure Taylor-Wimpey are currently regretting selling leasehold houses with onerous ground rents due to the tsunami of bad press they are currently receiving.

So if you find yourself owning one of these flats or houses with these terms contact the developer and ask them why they did it. Get together and contact the press.

If you bought your flat on or after 1 October 2015 you are covered by the Consumer Rights Act 2015. This Act applies to the terms of a lease and if it is proved that the financial implications of a lease term were not fully explained to you, it would no longer be binding on you. If you group together with your neighbours you can split the cost of the legal fees of proving this.

If you bought your flat prior to 1 October 2015 you are still covered by Unfair Contract Terms Act 1977 and you could get legal relief from these onerous terms if you can prove they are unfair.

Did your solicitor clearly inform you about the real implications of the terms of this lease when you were purchasing the property? If they didn’t you could have a claim against them for professional negligence and there are many easy to find guides on how to do this available.

Think about buying the freehold of your building and ridding yourself of the freeholder once and for all. Although the ground rent is high so the compensation you would have to pay the freeholder would be higher than normal, there is no reversionary interest to pay nor marriage value meaning it would be much cheaper to buy the freehold if you have a 999-year lease than it would if your lease was just 99 years long.

Write to your MP. The only real way to bring lasting change to the hugely flawed leasehold system is to change the legislation that surrounds it. This change can only come about when there is political appetite for change and sadly, I do not believe that exists right now.

If it did though it would stop this legal money making scam at the expense of leaseholders, once and for all and all of us can collectively add our voices to this demand and make a difference.

©Barcode1966 – 2016

Filed under: Uncategorized, , , , , , , ,

Why the threat of compulsory purchase orders has become one of the biggest fears for ex-local authority leaseholders in London.

418865_406280396101674_377969546_nCompulsory Purchases Orders (CPOs) are already a big issue in London, with many estates having already been forcibly bought. I am currently aware of 37 different estates in London that are currently fighting CPOs and it is just about to get much worse.

The current political thinking about CPOs in London

That’s because the political thinking around CPOs has shifted dramatically and swiftly during 2016. In this year’s London electoral race both Zac Goldsmith and the winning Sadiq Khan agreed that CPO’d council estates should be the land used to facilitate the building of the 50,000 new homes that were promised to be built per year in the capital.

In early 2016, the Prime Minister announced that he was about to blitz poverty by demolishing at least 100 large, run-down and difficult to manage council estates. He described these as ‘sink estates’ and to show how serious he was he pledged 149 million to it. Obviously 1.49m per estate is a paltry figure and so the government will need to rely heavily on developers’ money to pull it off.

Cameron then commissioned the silver-spooned Michael Heseltine (who ironically was a key figure in Thatcher’s original sale of council houses under the right to buy legislation) to examine how to demolish and redevelop the country’s 100 worst “sink estates” with the help of the private sector.

Heseltine says it is his dream to get rid of the ‘slums’, which is about to become a real nightmare for the legitimate tenants and owners of these properties. One thing Heseltine’s 17-person regeneration panel aims to do is speed up the process by fast-tracking developers’ applications.

Last March a body called the London Land Commission, headed by Boris Johnson, was formed to compile and publish a register of all publically owned land and property in London in preparation for this great compulsory plan.

Bizarrely a left wing think tank, the IPPR, have been embraced into this ‘social cleansing club’ and now seem to be at the forefront of current political thinking, having produced their own damaging report entitled City Villages: More homes, better communities.’ Here they assert that ‘by far the largest source of publicly owned land suitable for new housing is already owned by local authorities in their existing council housing estates.’

Following this all council estates have now been classified as ‘Brownfield estates’ and are now viable targets for CPOs, social regeneration and fat profits to be made.

This job of carving London up seems to have fallen to the estate agent Savills. They also produced a 164 report with the snappy title Completing London’s Streets: How the regeneration and intensification of housing estates could increase London’s supply of homes and benefit residents. In  their darkly disingenuous report, the estate agents spell out their vision of redeveloping existing council estates and the benefit it will bring to London (read: their friends, the developers); they also gleefully assert that they should be paid huge chunks of tax payers’ money to preside over it all, as the various councils don’t have the expertise.

I could go on and on but the upshot is that all council estates have now become valid and viable targets for CPOs and all politicians, potential mayors and the private sector are in agreement.

Why do councils want to issue CPOs?yuppie2

The official reason is to turn run-down estates into sparkling new homes for their social tenants and leaseholders.

The real reason though is mostly about money. Firstly, they get money from the eager developer who wants to mow down the flats and build nice shiny chrome and glass luxury flats to a mostly investor market.

They get out of having to pay for and provide thousands of homes for social tenants, who in CPOs get ‘decanted’ out of the area, sometimes being shipped as far away as up north.

In their eyes the area will become more desirable to live in once it’s been socially cleansed and they can then put your council tax up.

Finally, many councils signed up to LOBO loans and they need to pay them off.

A sad pattern that is emerging from all these regeneration schemes is that they are sold initially on the amount of social housing that will be included in these developments. It soon transpires that there isn’t enough profit for developers to include the social housing element they promised after all and it’s reduced to a minuscule amount of housing.

What are the biggest dangers to you if your flat is CPOed?

The number one danger is the amount of money they will offer you for your flat compared to what it is actually worth on the open market.

The councils have a legal obligation to ensure that a flat owner is in ‘a no better or worse financial situation’ after a CPO. The reality though is different and very grim.

Councils tend to make their first offer of compensation a derisibly low offer to start with to shock flat owners and set their expectations and then over a period of many months they incrementally increase the offer whilst doing a good job of managing everyone’s expectations.

Below are some very rough figures I have been given (I have not been able to check the validity of all of them all. I have heard the same figures time and time again however so they will be pretty accurate)

  • Hendon (worth £347,000), opening offer £130,000, final offer £214,000
  • Heygate (worth £355,000), opening offer £114,000,  final offer £164,000
  • Colville (worth £270,000), opening offer £120,000, final offer £150,000
  • Woodberry (worth £330,000), opening offer £130,000, final offer £158,000

Data obtained by campaigners at the Aylesbury estate under the Freedom of Information Act found Southwark council paid £147,500 for a four-bedroom, 97 sq m maisonette. The average house price in London at the time had just had hit £400,000.

At the West Hendon estate in Barnet, some leaseholders were offered just £90,000 for a one-bed flat and £130,000 for a two-bed maisonette when the council applied for the first in a series of compulsory purchase orders.

This is hugely unfair to flat owners who are not being given a fair market price for their flats and they cannot buy a like to like flat on the new development.

There is then a real human cost to receiving unfair compensation. Many leaseholders will be too old to get a mortgage and will not be given enough compensation to buy another flat in the area they have grown up in. They will be faced with either using their capital for rent until it is used up or moving hundreds of miles away to be able to buy cheaper properties.

Those young enough to get a mortgage will be in a similar positon of not being able to afford to live in the area they currently do – with their friends and extended families – and will instead be forced to move to cheaper areas. This causes real issues for families forced to break up, and it is widely documented that people in these situations are suffering from depression or mental health issues due to losing the support of their friends and families.

Of course if leaseholders are unhappy with the valuation offered they can take their case to the Upper Tribunal but the cost of valuers, solicitors and barristers is very daunting to leaseholders. Also the councils, who get all their fees paid for by the tax payer, are almost certain to appeal if they don’t get the desired decision, thus wiping out a huge portion of the compensation received by a leaseholder, win or lose.

Will buying your freehold prevent a CPO from happening?

34836_chopsticksbeforePossibly. A council can make a CPO on any property as long as it is can be proved to be in ‘the public’s interest’. In reality though, it is generally much easier for a council to make a CPO on property they broadly own than to do it on property that is completely privately owned.

The more buildings that have the freehold purchased the harder it will become to make these sweeping CPOs.

There is also the scope for a much higher valuation for flats with a share of freehold of between 1-3% which on some high value flats will start to make a big impact on compensation.

There is a further argument that was successful and became case law in CPOs.

Transport for London v Spirerose Limited.

Spirerose successfully argued a form of “hope value” on the future development value on the freehold of the building that they owned. This adds a further layer to possible compensation if a building has been bought from the council.

Councils will not like the fact that bulk lease extensions and freehold purchases are being done on these estates as it will be driving up the compensation they will have to pay out if they try to serve a CPO.

What can you do to stop a CPO?

Anyone can submit a freedom of information request to a council to see if your block is being considered as a possible CPO target. There can be lots of rumours around the fact but it is simple to find out the truth.1441360468

If you are targeted for a CPO don’t despair! The council have to jump through a lot of hoops to get the permission required to take possession of your homes.

Organise yourself into a group with your neighbours who will be affected. The best possible chance you have is to act as a group to fight the proposal. Connect your group with those social tenants at your block who will also be looking to object; although you will both have different issues you have the same goal and it is a mistake to act separately.

Look at what other estates have done to fight CPOs, as there is a lot of information out there.

Write to MPs to let them know the human cost of CPOs.

Just recently the Aylesbury estate has won a famous victory to prevent a CPO taking place but we need to watch closely what happens next.

Some useful links

The official stance on CPOs

Some key case law

Another tower of shame (35 percent)

Heygate sell off (35 percent)

Heygate Estate Southwark Notes

©Barcode1966 – 2016

 

Filed under: Uncategorized, , , , , , , , ,

The truth about legalese in leasehold

Why do we get more legal protection as consumers when we buy a cheap mobile phone for £10 a month than we do when we buy a flat for four million pounds?

6a016306ae679a970d016769195101970bWhy is it so difficult to read and understand the terms of a lease?

Does anyone else find it odd that the leases which lay down the details for leasehold property ownership, the terms and regulations on how we can live in the property and the very important small print that can
have significant financial implications, are all purposefully written in a way meant to obscure their meaning?

In every other area of our consumer lives the laws protecting us are tightening up, culminating in the recent Consumer Rights Act 2015, as legislation looks to legally protect the consumer from unscrupulous business practices and see that they not tricked confused mislead or ripped off when signing a contract.

One of the few types of contracts being excluded from the draconian Consumer Rights Act 2015 is the lease of a property which seems odd. The Act states that the only contracts that are legally excluded from being protected by the Act are contract that relate to ‘the creation or transferal of property’.

Why is that?

Why is the contract, that involves the biggest and most important purchases of our lives, purposefully excluded from legislation that is designed to protect us from the crooks?

Let’s look at a real example of this.

Imagine you have bought a flat and you want to look at your lease to see how much your ground is, how much it will rise to and when, which should be a pretty straightforward thing to do surely?

All these details are contained in your lease so you settle down with a cup of tea and a copy of your lease and start to read.

It may firstly take you a few seconds to establish if you are the lessor, landlord, lessee or tenant. Once that is done you can proceed.  18m9x8

(The details below come from an actual lease which I had on my desk at the time of writing, I didn’t choose it because it was overly complicated it was just one that had been printed out, I’ve seen more complex ones than this)

So remember you are looking for how much your ground rent is, what it will increase to and when. Here is what the lease says:

“Schedule Four

Rent payable hereunder by the tenant

  • “The rent shall be fixed for each of the following periods:

First period                 First 25 years

Second period            26th to 50th years

Third period                51st to 75th years

Fourth period              76th to 100th years

Fifth period                  101th to 125th years”

So that is the timing for your ground rent schedule, a little convoluted but it isn’t impossible to comprehend.

So first bit done, now much is the rent? The lease continues to explain it for us.

“For the first period the rent shall be two hundred and fifty pounds per annum”

Crystal clear! That’s not difficult to follow at all! What’s all the fuss about? This lease reading business is a doddle!

What happens after the first 25 years though?

“For each subsequent period the rent shall be the value of the ‘current rent guide’ (which is defined below) on the last day of the previous period

  1. Initially the current rent guide shall be computed by the formula

                                                             250.00 x          A

                                                                                       B

Where A is the most recently published value of the general index of retail prices complied before the 1st of June 1988

The said formula shall continue to be used notwithstanding that its name be changed or that it be published by a different department so long as the government for the time being continues to compile and publish it on substantially the same basis as the date hereof”

All you want to know is how much is your ground rent is going to increase by in the future. What is all this A over B nonsense?

It now looks a tad confusing but have no fear it looks like number 3 Is going to shed light on the whole issue.

“3. If in circumstances set out below the index used for calculating the current rent guide shall be changed it shall therefore be computed by the formula

                                                            R x       C

                                                                        D

 Where R is the most recent value of the current rent guide at the date of the change of index:

 C is the most recently published value of the new index

And

D is the value of the new index on the date of the change of that index.”

I hope that is now clear to you all, it’s as easy as RDC.

I know what you are all worrying about now though, I can worryingly hear you all asking the question collectively “What happens if Retail Prices are recalibrated?

Well don’t worry about it for a second as the lease makes it very clear what you need do!

“4. If the General Index of Retail Prices shall be recalibrated it shall be deemed to be a change of index for the purpose of foregoing paragraph”

If you are thinking that could possibly have been explained a little clearer then worry ye not, as the lease includes a rather helpful example.

“Explanatory Example

If on the last day of October 1990, when the index stands at 425, the Department of Employment resets the Index to 100, the current rent guide will be

                                                            250.00 x          100 equals 58.82

                                                                                    425

so that immediately thereafter it will become

                                                            58.82 x            C

                                                                                    100

where C is the current value of the (recalibrated) index”

Pretty clear I’m sure you will agree. You now know your ground rent timings, how much it will rise by per schedule and what will happen if the Retail Prices are changed or recalibrated.

Wait! good God man! What will we do if the Retails Price Index is cancelled? Like me, you probably wouldn’t be able to sleep tonight if we don’t find an answer to this burning question but once again the lease comes to our rescue.

“5. If the index currently being used for the purpose of computing the current rent guide shall cease, then both the Lessor and Lessee shall use the new index of the closing middle price of gold sovereigns of the weight and fineness set out in Schedule 1 of the Coinage Act 1971. The said closing middle price shall be the price quoted at, and published with the authority, the London Stock Exchange”

20150820-Legalese-is-optional-you-can-write-a-contract-400x532I can’t help feeling that the terms of the lease are a little slapdash as they do not explain how the ground rent uplift should be calculated if the London Stock Exchange is ever closed or if England were to sink into the sea or we are taken over by aliens from another planet who replace our current currency with monkey nuts but I’m afraid it’s all we have to go on.

What nonsense this all is. Why is it allowed to continue like it has? Why can’t leases and legal documents be protected by the same consumer laws that protect why we sign up for a loan? Why can’t they be written in clear understandable way that anyone can understand?

The average leaseholder would probably feel compelled to take some sort of legal and valuation advice on the above terms, and have to pay handsomely for the privilege, to feel secure in their decision to purchase the property.

A MORI poll published in May 2016 found that 21% of people paying for legal advice sought advice on issues surrounding property ownership (excluding conveyancing). That’s a good little earner for solicitors right there, how much do these obfuscated legal terms found in leases contribute to this figure?

We all seem happy to accept the fact that the lawyers we pay to write lease terms in legalese are the only people who can translate these terms back into English for us, for a fee. It’s ludicrous.

How would we all react if suddenly all mobile phone contracts were written in Klingon and we had to pay a Klingon expert £300 per hour to translate the contract into English for us? (With a small print caveat to say that “Although we have retained to translate this mobile phone contract from Klingon into English for you, we cannot be held financially accountable if in fact it turns out that our advice is in Betacrypt as we acted in good faith blah blah blah)

How much easier would it be for the leaseholder if the terms of the lease were written in a no-nonsense way designed to be understood by all? For example:

“1. The ground rent schedule for your property is as follows:

Your Ground rent is £250 per annum for the first 25 years of the lease. This increases every 25 years in line with the Retail Price Index.

If the Retail Price Index is recalibrated, then we will divide the new rate with the old rate to ensure that the ground rent increase is fair and proportional”

Imagine if all the terms of your lease were written in the same, clear manner and were written in such a way that everyone could understand their meaning and be able to make informed decisions as to property ownership and the small print that governs leasehold life.

One of those conspiracy theorists people would say that this is all done on purpose to ensure that flat owners don’t understand what they are signing up for and so get ripped off by predatory billionaire freeholders who use legalese to their financial advantage on a daily basis.

Of course, I am wearing a tin foil hat to protect my brain from these conspiracies and so I don’t subscribe to this view at all.

Complaints procedure for the article above

If the article and thesis you have perhaps promptly ponderously painstakingly pedantically perused on this digital platform or ergo a facsimile of said digital reproduction of said pertinent presentment has aggrieved disaffected exasperated or offended any members, associates or affiliates of the legal profession or you postulate that has in some way infringed any intellectual property rights or prerogatives then:
Please present a physical or electronic signature for yourself or for a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed. Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted works at a single online site are covered by a single notification, a representative list of such works at that site.
Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material. Providing URLs in the body of an email is the best way to help us locate content quickly. A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law. A statement that the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.
Once you have collated said materials then procure or solicit a fowl of the Columbidae varity and securely affix said documentation to its person and dispatch said Columbidae fowl to us post haste ensuring said animal has the navigational wherewithal to elicit a satisfactory completion of said delivery.

©barcode1966 – 2016

Filed under: Uncategorized, , , , , , ,