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

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.

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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

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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.

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The quotations were supplied by:

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

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