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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 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 leasehold houses scandal and what you can do about it

Why are leasehold houses called a ‘scandal’?

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

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

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

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

It really doesn’t smell right does it?

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

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

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

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

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

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

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

I say categorically not!

Why do ground rent investors buy the freeholds?

For money and a lot of it too!

They make money from:

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

So, what are your options?

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

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

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

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

What are you looking for in this file?

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

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

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

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

What are your chances of suing?

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

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

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

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

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

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

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

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

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

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

OPTION 2 – You can buy the freehold of your home

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

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

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

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

Why should you bother?

The benefits are:

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

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

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

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

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

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

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

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

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

What does that mean in pounds and pence?

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

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

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

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

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

So what is the process of buying your freehold?

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

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

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

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

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

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

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

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

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

Why would they?

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

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

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

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

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

How do you choose which Solicitor and valuer to use?

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

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

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

It will save you money on:

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

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

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

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

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

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

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

©Barcode1966 – 2017

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

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

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

Court fees

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

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

It could have been much worse though.fullsizeoutput_4c7

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

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

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

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

The ‘Mundy’ decision

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

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

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

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

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

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

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

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

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

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

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

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

Rule 13 wasted costs

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

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

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

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

Right to manage by block

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

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

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

Ground rent scandals

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

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

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

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

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

So what does 2017 have in store for leaseholders?

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

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

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

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

Is there any good news at all?

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

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

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

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

©Barcode1966 – 2017

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