barcode1966

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

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.

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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.

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©barcode1966 – 2016

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