barcode1966

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

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

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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

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Upper Tribunal takes billions away from leaseholders and gives it to freeholders on ‘flawed relativity’

Banner-LogoLast week the Upper Tribunal handed down its decision on a case that is known as ‘Hedonic Regression’.

Due to its complex nature only a small number of people seemed interested in it and fewer still understood the importance of the decision. It is no exaggeration to say that the implications and fallout will trigger the biggest transfer of wealth from leaseholders to freeholders since 1066.

Once the lease length of a property has fallen below 80 years it is said to be worth less than its full value. For every year the lease length continues to fall it loses even more of its value. This is known as ‘relativity’.

When a leaseholder extends their lease, they are directed – by law – to pay 50% of the resulting uplift in the property’s value; the lower the relativity, the more money the freeholder receives, so it has always been in their interests to ‘prove’ low relativity.

Some two decades ago, a number of London’s landed estates decided to commission the development of their own relativity graphs. These graphs, produced by chartered surveyors and estate agents (no, really!), would offer ‘evidence’ from lease extension cases with which they had dealt, but which obviously ‘proved’ low values on flats with low leases. This ‘evidence’ and the resulting ‘methodology’ would then ensure they were able to squeeze much more from their leaseholders.

These mighty freeholders had the wealth and power to ensure that their flawed graphs were used at the Lands Tribunal time and time again until such time that they were ‘accepted’ as viable methods or even ‘industry standard’.

For example, the Gerald Eve Graph (GE) is widely considered to be the ’industry standard’ even though the ‘Hedonic Regression’ decision says of it:

 “The GE graph was adjusted subjectively” (65, p78); that it was “directed to the particular requirements of the Grosvenor Estate” (65); and the “Grosvenor Estate had received relatively favourable settlements” because of it(8, p67)”.

So, no proof offered, no evidence given, subjectively altered to suit the pockets of the central London estates but at the same time accepted as the ‘industry standard’.

This clearly means that leaseholders have been railroaded into paying more for their lease extensions than they would have if a less subjective way of calculating the real fall in the value of a property with a short lease were in place.

Parthenia, headed by James Wyatt FRICS, produced a graph that did that very thing, that was less subjective and based on real evidence. It used real evidence from the sale of flats in Prime Central London and by using nearly 8,000 pieces of evidence, tried to calculate this loss of value scientifically and remove the subjectivity of wholly partisan practitioners.

Once the freeholders had sight of the results of this statistical analysis, two things became immediately apparent. Firstly, leaseholders had been paying already bloated freeholders considerably too much for their lease extensions for decades. Secondly, these freeholders would be prepared to do anything in their power to stop this new relativity graph ever from being accepted, as it would wipe billions off the value of their property portfolios. So stop it they did.

The decision, an 80-page tome, was handed down last week and it must be singularly the most partisan, hypocritical and disingenuous legal decision for decades.

In a further overreaching pronouncement (which in gravity matched the orders to destroy the city of Tyre) they state “[the HR model] should not be put forward in a future case as a method of valuing [a lease extension] (165,p43)”. They wanted to exterminate this valuation model that was not only fair, but favoured leaseholders.

It examined the Parthenia model in eye-watering detail, with experts lining up to disprove it; the Wellcome Trust alone is rumoured to have spent many hundreds of thousands of pounds on its legal defence, even though the total disputed amount of this case was only £180,000. The judges subsequently rejected Parthenia’s model for ever for having some technical errors, which they stated could never be righted. This was experts gleefully ruled against its use on the basis that it was “unscientific” and it failed some of the tribunal’s ‘necessary technical tests’. This was setting very high standards indeed for relativity graphs. They helpfully reviewed all other existing graphs in Appendix C (p66) so how did the others fair?

In Appendix C, the judges cheerfully assassinate all the other ‘accepted’ relativity graphs the sector on which the sector relies.

The GE graph was “altered subjectively” (63, p77); achieving “favourable settlements”(8,p67) for the freeholders who funded the graph; of the College of Estate Management (CEM) graph, “there was no evidence that …had used it” (67, p79); John D Wood was based on LVT decisions and where there had been “concerns expressed over whether the LVT decisions always produce a correct valuation”(43,p74); The WA Ellis graph just reflected “the opinion of three of that firm’s partners” (69, p79); Charles Boston’s graph would “reflect any personal bias” and the Cluttons graph was “a moving average” (70, P79)!

The staggering hypocrisy, circular logic and Kafkaesque graph-011reasoning of the decision is right here; although all of the above graphs are proven to be unscientific, subjectively altered to suit their freeholder clients, and based on opinions and personal bias and nothing else.

Nowhere does this decision say that these flawed graphs a “should not be put forward in a future case”, no that judgment is reserved just for Parthenia’s model alone!

Worse still is the fact the failings of these graphs are mentioned as some dry mathematical calculation, which are undeniably slanted to favour freeholders. No mention is made of the fact that it is leaseholders who have had to pay inflated prices for lease extensions because of these graphs – and to the tune of many millions of pounds. The human cost of these subjectively altered graphs is a scandal, which is completely ignored by this case.

If, for example, a building firm had overcharged a little old lady for roof repairs to the same degree, they would have several episodes of Rogue Traders dedicated to them and a two-page spread in the Daily Mail, not to mention a special place in a police cell reserved for them!

If we can’t use the Partnenia model, nor any of the other fabricated relativity graphs we have relied on, how do we calculate relativity from now on?

Here comes the next inexplicable part of this decision, which, again, favours the freeholders and makes sure leaseholders pay for it.

There are two types of evidence used when trying to plot relativity data for leasehold properties. The Leasehold Reform Housing and Urban Development Act 1993 states the values should take place in a ‘no Act world’ arguing that once the Act come into being it affected the values of short lease properties. Therefore, the pure sales data used should come from before 1993. These are referred to ‘without rights’ properties.

The second type of data is ‘with rights’ (post-1993 evidence). Once this data is collated, it then needs to be adjusted down to guestimate the percentage difference between ‘with rights’ and ‘without rights’ values.

Remember, the lower the relativity percentage the more money the freeholder makes.

Well, the judges in this case seem to indicate that we should use a ‘with rights’ graph and then someone with a fancy London office, who represents the freeholder, uses their considerable experience to guess how low the percentage should be.

What could possibly go wrong with that method?

Although the judges mention the Savills 2002 graph as flawed but good (it has very low relativity rates) it seems they and the freeholders are all waiting expectantly for the new, improved Savills 2015 ‘with rights’ graph. This is also a relativity graph based on the Hedonic Regression method of valuation. Although this model, like Parthenia’s model, currently has technical faults, the judges for some reason do not proclaim that this graph should be cast out forever.

It may be worth mentioning at this point that the Savills 2015 graph “was produced specifically to be part of the Wellcome Trust’s evidence in relation to flat 5 [of this case]” (54, p75).

This is really bad news for leaseholders as this graph agues even lower relativity than the Gerald Eve graph, etc. and the rates can be argued down by an ‘experienced valuer’ to calculate how much lower this should be to account for the ‘no act’ world.

It is, however, good news for freeholders and good news for valuers, solicitors and barristers as this will lead to more litigation, which just like this judgment will come down in favour of the billionaire freeholders.

This case has been a dream result for the Wellcome Trust. If the court room was situated in Wellcome’s offices and the judges were salaried employees of theirs, they could not have got a more favourable result! They disproved the Parthenia Model, got it banned ever from being put forward in the tribunal again. They won the actual case on the three disputed flats and they got their mates, Savills, to produce a relativity graph that the judges loved and recommended we all use from now on, which lowers relativity even more in their favour. That really was a good day at the office.

Can it really be acceptable that two part-time judges who preside over the humble Upper Tribunal have the authority to make a judgment which affects property values across the whole country without political debate or the need for legislation?

Can it be fair that the methods used to ‘prove’ that this transfer of wealth from leaseholders to the establishment is based, by their own admission, on flawed evidence?

1528622_10152538665934745_1047791817_n1-150x150Can there be no redress to this decision? It irresponsibly casts doubt on the current flawed method of valuation while offering no viable alternative, thus opening the door to prodigious amounts of litigation to establish valuations which almost always favour billionaire freeholders?

Surely we need a judicial review as a matter of urgency before the ridiculously unfair and antiquated leasehold system we have in this country takes on a new more sinister twist.

This decision on relativity, which has just been fixed even further to favour freeholders is the LIBOR scandal of the property world.

©Barcode1966 – 2016

 

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