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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?

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The truth about informal lease extensions

bp-carrot-stickThis blog is an in depth examination the real implications of accepting a non-statutory or ‘informal’ lease extension from your freeholder.

I apologize that some of this information is complicated and difficult to follow but please bear with it because your freeholder trades on the fact that you probably won’t be able to understand it, so make sure you prove them wrong!

Informal or non-statutory lease extension are deals offered to you by your freeholder when you wish to extend your lease and they are designed, at first glance, to make it look like you are getting a deal!

Nothing could be further from the truth though. I call these informal offers ‘Trojan horse offers’. They look like a gift but when you look inside the details can be catastrophic.

The ancient city of Troy was under siege by the Greeks, and the siege had become a stalemate. The Greeks built a wooden horse and had some of its soldiers hide inside and pretended to leave. The inhabitants of Troy accepted the horse as a goodbye gift only to find that the soldiers sneaked out at night and let in the Greek army in and the city was lost.

This is a fair analogy of a freeholder’s informal offer, lets see why.

Your legal rights

If you have owned your flat for two or more years then you have a legal right to extend your lease by 90 years and reduce the ground rent to zero.

How to value a lease extension

The law says that you must compensate your freeholder three different ways when you extend your lease (or purchase your freehold)

  1. Ground Rent

This is the amount of ground rent you owe your freeholder in total for the remaining years of your lease, but calculated in today’s money;

  1. Reversion

This is the amount you would have to give your freeholder as a lump sum, so that they could invest for the remaining years of your lease (with an equivalent compound interest rate of, say, 5%), that would be worth the value of your flat – with a long lease – today;

  1. Marriage Value

This only applies if your lease has fallen below 80 years. If you extend your lease, the value of your flat will rise. The rise in value must be calculated and the total ground rent and reversion due subtracted.
Whatever is left is then split 50/50 between you and your freeholder.

In this blog I am going to use real figures from a flat I recently worked on and are going to use these figures as method of seeing the real implications of an informal lease extension.

The details of the informal are also real from a large, immoral, London based freeholder.

Our example is A1 Nice flat in London

  • The value of the flat with a long lease of 99 years £230,000.00
  • Ground rent £75.00 per year doubling every 33 years.
  • Current lease length 75 years.

The valuer recommends the following:

  • Ground rent total £2,143.00
  • Reversion total £5,849.00
  • Marriage value total £1,754.00

Total for lease extension £9,746.00

Add the total fees on top of this of £3,500.00

Total price £13,250

If you extended your lease using your statutory legal right then your lease would be 165 years with zero ground rent. The lease would not need extending for another 85 years and even then it would be very cheap as there is no longer a ground rent element to include in the calculation.

The lease length issues of your flat have been rectified once and for all and there would be no future value in your flat for your freeholder.

Your statutory lease extension from your freeholder’s point of view.

Your freeholder is more than likely a ‘professional’ freeholder (which is a euphemism for immoral, cheating, money grabbing bastards). money_quote

They bought the freehold of your building to make as much money as they possibly can from each flat.

They make money the following ways:

  • From immoral licensing fees hidden in the terms of your lease.
  • By ripping you off by claiming a ‘finders fee’ they get back from your building insurance, which you have no choice but to pay them for.
  • By syphoning off service charge fees.
  • From the ground rent you pay to them each year.
  • The money you have to pay them for a lease extension.

You extending your lease is the big pay day for them and if they can fool you into accepting an informal lease extension it will turn into tens of thousands of pounds for them. If, however, you extend your lease by an additional 90 years and reduce the ground rent to zero, this basically wipes out all the future profit they will receive from your flat.

They really do not want you to do this.

They want you to accept their ‘Trojan’ lease extension deal.

What does an informal lease extension look like?

I would like to state, emphatically, for the record that you do NOT have a legal right for an informal lease extension. Please bear this in mind, we will return to this many time in the rest of this examination.

There is another way you can extend your lease and that is by contacting your freeholder directly (or many times they will contact you) as soon as they are aware you want to extend your lease.

Below is an informal lease extension offer from the freeholder for this flat.

Dear Mr and Mrs Naive

We are happy to offer to extend your lease back up to 99 years for the inclusive price  of £10,200 and our total legal and valuation fees will be an additional £1,000 pus VAT.

The ground rent will be £250 a year doubling every 10 years.

We will are not looking to amend your lease in any way, we will only modernise the terms of your lease. We are able to complete this process in two months.

This offer is valid for thirty days from the date on this letter.

What this offer looks like at first glance

Wow, it appears that the freeholder is a nice guy after all! The total price he is offering is £10,200 plus fees of £1,200 (Total £11,400) saving you £1,850 pounds to extend your lease back up to 99 years.

Ground rent is just £5 per week and they only want to modernise the terms of your lease.

They will complete this whole thing in three months (instead of a year if you extend using your statutory rights) This is brilliant, “Where do I sign?”

That’s why I call these offer Trojan offers, because the devil is in the detail.

Let’s examine this offer more closely.

The term of the lease extension

The freeholder generally offers to extend your lease back up to 99 years and this seems like more than enough for most flat owners.

There is a very real reason freeholders only offer an extension back up to 99 years and that is because in 17 years or so, someone is going to have to extend the lease of the flat again.

greedy-man-300x199That means the freeholder gets paid a second (and third and fourth) time to extend the lease, something that would not happen if the lease had been extended by the statutory route.

As we will show later in this blog, the details of the informal offer they have offered here means that whoever is unfortunate enough to own this flat when the lease needs extending again in 17 years, is going to have to pay an absolute fortune for the privilege.

Beware of another trick the freeholder does regarding the term of the lease, they may offer you a 125 year lease extension which seems like it could be a much better deal for the flat owner.

They omit to mention that the 125 year extension starts from when the lease was originally granted NOT your 74 year lease extended up to 125 years!

If you are unhappy with this, you have no legal recourse to argue with your freeholder. You do not have a legal right for an informal lease extension it is a take it or leave it deal.

The future implications of ground rent

£250 a year doubling every 10 years does not sound like a lot of money, but it is.

A ground rent schedule like this is considered an onerous ground rent schedule, which could easily affect the future salability and value of the flat. This is because the freeholder is going to make money two different ways from this increased ground rent.

Firstly, the ground rent he will get extra before someone extends the lease on the flat again. If the ground rent is £250 per year, then the freeholder will make £2,500 extra that he would not have if the flat owner had used their statutory rights for the next ten years and then it doubles, then doubles again and again.

That’s not the big money for the freeholder though. The big money comes from the fact that someone is going to have to extend the lease on the flat again, only now, instead of the ground rent being £70 a year like it is now. The ground rent is now £1,000 a year!

So how much will the freeholder make over the next 24 years because they tricked the flat owner into the informal offer?

  • Cost of the lease extension = £10,400
  • Legal fees = £1,200
  • 10 years @ £250 ground rent = £2,500
  • 10 years @£500 ground rent = £5,000
  • 6 years @£1,000 ground rent = £6,000
  • Cost of the lease extension = £76,500
  • Plus legal fees @ £2,000 =£2,000

Total received by your freeholder over 24 years = £103,600

Compare this to the £13,250 you would have spent to extend your lease for an additional 90 years with zero ground rent forever more.

The initial saving of £1,850 your freeholder waved under your nose has turned into £90,000 profit for him, not a bad business being a freeholder is it?

Just to be very clear, when a freeholder increases the ground rent he makes money two different ways, the actual ground rent he collects each year and the future value of a lease extension with an onerous ground rent clause.

A future freehold purchase

Another ploy by predatory freeholders is to offer informal lease extensions to flat owners when they know they are going to sell the freehold of the building. They offer an informal and you pay them £10,200. A year later they offer to sell you the freehold of your building. How do you calculate your share of the freehold purchase?

You have to calculate the ground rent and reversion elements we talked about at the start of this blog but your ground rent is now huge and doubling every 10 years. You will end up paying more than £10,200 to purchase your share of the freehold!

Note: If you had extended using your statutory rights your there is zero ground rent, no marriage value as your lease is 165 years, so the only calculation is reversion but this is over 165 years. It would cost you about £250 to buy your share of the freehold!

There are also much worse offers you will need to watch out for with the ground rent. Here are some I see every day.

Onerous GR clauses

RPI

Freeholders will often ask for £250 a year rent, doubling every 10 years linked to RPI. RPI stand for the Retail Prices Index, which is used to measure inflation. Obviously no one knows what inflation will be in the future but one thing that is sure is that it will cost you dearly.

Not only will your ground rent double in ten years, someone will calculate what has happened to RPI over the last ten years and add it to your doubled ground rent!

Capital Value of flat

Freeholders will often ask for £250 a year rent, doubling every 10 years linked to 0.025% of the capital value of your flat.

After ten years not only will your ground rent double, your ground rent will then be linked to the actual value of your property!

Capital Value of the estate

Some of the estates in London have ground rent doubling every 10 years linked to 0.025% of the capital value of the estate, not just your flat!

Doubling every five years

We see more and more freeholders trying to fool people into signing informals where the ground rent doubles every five years.

This is just ridiculously onerous! Taking any of these deals could leave you owing a flat that no one wants to buy (except, of course, your freeholder who will be happy to buy it for a knock down price).

I worked out what effect this would have on a flat with a 999-year lease we worked on recently in Islington. The ground rent was £250 a year doubling every 25 years.

We worked out for the last 25 years of the lease the ground rent would be £165,000,000,000.00 per year! It is not just the future implications of the ground rent that you need to look out for if you are considering taking an informal (although that should be enough!).

Let’s look at the other areas we need to be aware of.

The terms of your lease

If you extend your lease using your statutory legal right, you are protected by law and your freeholder cannot alter the existing terms of your lease.

If you take up your freeholders offer of an informal lease extension you are not protected and your freeholder can make any changes he wishes.

‘Wait!’ you may cry ‘In the offer letter from the freeholder they state that they will not alter any terms of my lease, they will just modernise them!’

It does say that in the freeholders offer but in reality, what does the word ‘modernise’ mean?

I can tell you categorically that the word ‘modernise’ means whatever terms can be changed to benefit your freeholder. I see this every single day in my office.

It may be worth pointing out at this point that the saving your freeholder is offering you in this informal deal come from the fact that you will have no legal representation through this process.

They are telling you to not to have a lawyer protecting your interest through this process and they are then presenting this fact to you as if they are saving you money! Genius isn’t it?

The truth is though, there is no point in having a solicitor represent you in an informal as you do not have a legal right for it. It is a ‘take it or leave it’ offer so even if you find something you are unhappy about, there is no legal mechanism for you to remove it.

So what are the terms of the lease the freeholder is keen to change?

Put simply, anything that makes them more money and protects their position as your freeholder.

Licenses

They will insert additional licenses that mean you have to pay them to alter your flat, sell it, rent it out, renew the rental contract each year with your tenant, get cable TV, turn over to your left side in bed at night etc.

I spoke at a block of flats a couple of years ago at some flats close to West Ham tube station. One chap in the audience thought I was exaggerating the issues of informal lease extensions and he went direct to his freeholder for a flat he rented out.

He phoned me a few months later to say that his freeholder had instead added a clause in his lease, which said that he would have to pay the freeholder 10% of the rental income he receives each month, forever more. The chap wanted to know what he could do about this clause as he had signed it a couple of months before and were now chasing him for the money!

Some of the clauses of the lease the change could also have serious implications for the security of your flat and increase the freeholder trying to get forfeiture of your flat (which they love).

They may insert a clause in your lease, which says that if you ever take them to court, for whatever reason (even if your freeholder was caught committing service charge fraud) that the freeholder’s full legal fees can be reclaimed from you by way of the service charge.

If you sign the new lease, with these terms it is now your reality and you can’t alter it.

Be very, very careful regarding the terms of a lease and remember that even if you find bad ones your freeholder has tried to insert, there is absolutely nothing you can do to remove them.

Timescales

The other area to keep an eye on is timescales. You do not have a legal right for an informal lease extension and your freeholder can withdraw this offer whenever he wants, with no legal recourse at all.

Why would they do this?

There are many reasons a freeholder would withdraw an offer, but it’s always so they get more money from you. For example, if you were selling your flat and you have a buyer lined up and it all hinged on this lease extension, your freeholder may withdraw their offer claiming there was a mistake on the valuation and they now want £1,800 more.

Chances are you will just pay it!

Freeholders often do this when your flat lease length is about to go below the pivotal 80-year mark. The freeholder offers what appear to be good informal offers.

feudalism-e1397973878227They drag out the negotiations to the point when you do not have enough time to extend your lease through the legal process and then they withdraw their offer.

Your flat has now gone below 80 years and your freeholder’s investment has risen by thousands of pounds per flat. There is nothing you can do about it either.

I have lost count of the amount of times I have heard freeholder’s solicitors bragging about doing this to flat owners.

If you extend your lease using your statutory rights there are strict timescales that your freeholder must abide by.

Caveat emptor

I am shocked by how many professionals recommend that their clients accept informal lease extension without pointing out any of the above.

The big excuse used by all the professionals who recommend that their clients accept informal offers is ‘Why are you worried about the details, let the person who buys your flat worry. You save £1,800 that all you should care about. Caveat emptor!’

If a solicitor or valuer quotes you to extend their lease they have a year long battle with a knowing freeholder before they get their money. Obviously, if an informal lease extension offer is accepted they get their money very quickly with little work which is why few professionals point out all the problems I have in this blog.

Also, maybe five years ago this argument of ‘let someone else worry about the details’  may have been true, but it’s not a fair argument anymore.

More and more flat owners and solicitors are looking at the details of informal lease extensions and onerous terms inserted in the lease.

We see so many flat sales fall through now because someone has understood the implications of the informal lease extension offered.

Banks and building societies are also understanding the implications of onerous informal deals and the future effects these have on the value of flats.

In the big mortgage shake up of April 2014, the Council of Mortgage lenders brought in more stringent tests for people wishing to get a mortgage. This also included looking at the details of a flat sale.

In fact, the Halifax building society has already stated that they will take not grant a mortgage on any flat where the ground rent doubles every ten years. What about future legislation changes which could highlight these informals even more thus raising customer awareness to it?

Maybe the people buying your flat won’t understand the future implications of what you have signed up to in your informal deal with the freeholder, but is it really worth taking the chance to save a few hundred pounds in the short term?

How would it affect your future plans if you were stuck with a flat that you couldn’t sell?

Conclusion Why shouldn’t you accept an informal lease extension from your freeholder?

  • It will commit the flat to an additional £100,000 needless spend over the next couple of decades.
  • It means that this flat will have to spend a disproportionate amount to extend the lease in the future.
  • It would also cost a fortune for this flat to take part in a future freehold acquisition.
  • You will undoubtedly sign up your flat to lots of unsavory new lease terms.
  • You could massively damage the future resale value of your flat.
  • You could end up with a flat no one will buy.

The ‘Trojan horse offer’ of an informal lease extension really does contain lots of nasty details inside.

Details that can have very long term repercussions for this flat and whoever is unfortunate enough to own it. Most freeholders are professional freeholders and by and large they are not your friend. They own the freehold of your flat for one reason only and that it to make as much money as they possibly can.

You have no reason to ever trust them and I implore you to never trust them.

“Beware of freeholders, even those bearing gifts”

©Barcode1966 – 2015

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