Tag Archives: leasehold

Taylor Wimpey Announces £130m Leasehold Sticking Plaster Solution To Housebuilders’ PPI

Caught in a trap! Taylor Wimpey  “sorry” for ripping off leaseholders!

Some mistakes are hard to fix.  It is better to be careful – not sorry!
Taylor Wimpey used a trading statement last week to announce their ‘conclusions’ following a review into the company’s historic lease structures. This focused solely on a specific lease structure used from 2007 to late 2011, which provides that the ground rent doubles every 10 years until the 50th year. In doing so, the company created a new asset class that is now very attractive to specialist investors, because it equates to an annual interest rate of 7%. Taylor Wimpey claimed these leases “are considered to be entirely legal.” It remains to be seen whether the charges would be deemed by a court to be ‘fair and reasonable’ Under the Unfair Terms in Consumer Contracts Regulations 1999.
Taylor Wimpey Loddon Park Freehold but far from problem freeTaylor Wimpey now admit that: “the introduction of these doubling clauses was not consistent with our high standards of customer service and we are sorry for the unintended financial consequence and concern that they are causing.” Surprisingly, Taylor Wimpey says the total cash outflow of around £130million “will be spread over a number of years.” In addition, this only applies to the “qualifying customers subject to eligibility checks” – only those owners who bought from Taylor Wimpey are to be “helped.”

Ground Rent Review

Taylor Wimpey ground rent review letterTaylor Wimpey has written to buyers who have complained about their leases with the onerous ground rent doubling clause. In the letter Taylor Wimpey outline its “Ground Rent Review Assistance Scheme” funded by the company, which offers to negotiate on the customers’ behalf with freehold owners for a ‘Deed of Variation’ to “convert existing doubling leases to an alternative lease structure incorporating materially less expensive ground rent review terms.” with Taylor Wimpey covering the financial cost of doing so”.

The letter to buyers concludes: “we believe this is the best answer for you.”

But a look under the bonnet and we find this interesting insight contained in the Seeking Alpha transcript from a Taylor Wimpey Earnings Conference Call on 27 April 2017. In it Taylor Wimpey CEO Peter Redfern concedes:

“this [leases] is clearly an uncomfortable issue” [as they try to]  “work out what’s the best way to reduce the reputation issue for the group – a historic leasehold issue that we think is right to deal with but important to do and get right in one hit, which is what we believe this is”

“In terms of timing, we don’t expect this to result in a significant near sort of immediate cash payment from the group. We think it will be spread over a number of years.

But I think most importantly, we’re confident that this does not impact our ability to follow through on our dividend plans to potentially increase our dividends in 2018″ 

Some more questions raised by the Taylor Wimpey announcement of £130m to rectify the ground rent and leasehold house scandal

 

When asked specifically about the issue of leasehold new houses Redfern said:

“You’ll be aware there’s lots of noise around leases more generally. But our own use of leases on houses, for instance, is lower than many in the sector. And also, what stands out about this is the scale and the fairness. What’s interesting in terms of whether it becomes a wider issue which we think is unlikely, is that we haven’t had a single legal claim, including on these doubling ground rent provisions. Because people did have independent legal advice, the contract is very clear, this isn’t a case.”

 The sale of leases on houses historically, people knew they were buying a leasehold house” “And the other elements actually, sort of — people knew they were buying a leasehold house.”

Did they really Mr Redfern?  Many were forced, coerced, or otherwise financially incentivised to use housebuilders’ recommended solicitors, never a good idea and can hardly be described as “independent legal advice.” In fact a class action for negligence is being prepared against new homebuyers’ solicitors.

Many were told by sales staff, they could buy their freeholds for a few thousand in 2 years time, only to find the private firms that bought the freehold were asking £30,000 or more. Many were told, incorrectly, that leasehold house was virtually freehold. Ellie Taylor posted on the National Leasehold Campaign Facebook Group: “We were told ‘it doesn’t matter because it’s a 999 year lease and you will be long gone by then’ – I found out it was leasehold just before we signed to reserve, I went outside to call my Mum as I was concerned and they [sales staff] made out like I was being daft.”

On doubling ground rents, Redfern said:

“I still think if we’d have done a really good diligent job, we should have seen the issues at that point in time. But we didn’t. But we’re looking back now with the benefit of hindsight in a different world”

Asked if this was being done to “preempt government taking this on board and championing the home owners cause”:

“we think this specific lease class, with hindsight, isn’t quite fair. I don’t actually think it’s that likely that government will take retrospective action on that. And clearly, if we thought that was imminent or likely to happen, we wouldn’t be making this announcement today. We’d wait and see what that is. But how we read that situation is, that is unlikely.”

Ground Rent Review Taylor Wimpey It is clear to me from the transcript of this broker teleconference, that Peter Redfern has no intention of ever helping those that bought leasehold new houses to obtain their freehold, either at reasonable rates, or at no cost as part of a compensation measure. Indeed, it is clear Taylor Wimpey do not even believe they have done anything wrong selling new houses on a leasehold basis. It is to be hoped that those in government are not taken in by this token gesture (‘Ground Rent Review Assistance Scheme’) which only relates to ground rent doubling every 10 years and nothing else. Even that, Redfern predicts, will take a “number of years” to complete.

It is my opinion that Taylor Wimpey have broken ranks, in an attempt to claim a non-existent moral high ground over other miscreant house builders. Peter Redfern, no doubt in consultation with other housebuilder CEOs, who unlike Taylor Wimpey, have no plans to stop selling their new houses on a leasehold basis, made this move to give the impression the industry was contrite and doing something positive. Indeed the Leasehold Knowledge Partnership  said on their website that Sir Peter Bottomley and Jim Fitzpatrick MPs and co-Chairs of the APPG for Leasehold and Commonhold Reform, “were contacted by Taylor Wimpey last night [26 April]. They were invited to discuss the issue with CEO Peter Redfern at 10am” [27 April] following the announcement and ahead of the firm’s AGM an hour later.

This statement has the potential to pull the wool over the eyes of those in parliament who quite rightly, want the sale of new houses on leasehold banned and those leaseholders for whom it is too late, given an opportunity to buy their freeholds either at reasonable prices, or be given their freeholds by their housebuilders. Obviously the housebuilding industry does not want this. It will be very expensive, albeit still affordable, given the excessive profits being made and obscene levels of LTIP bonuses being handed to CEOs – most of which has only been achievable because of the Help to Buy Scheme.

The Taylor Wimpey statement has enabled the industry an opportunity shed some positive, pre-emptive light, on what has been and continues to be, nothing short of a national scandal, described in parliament as the “PPI of the housebuilding industry” that has been allowed (and currently perfectly legal – but not morally right) for many years. An industry-wide hoodwinking of new homebuyers, many buying with the taxpayer-funded help to buy scheme, now own virtually worthless leasehold houses.

The report of the All Party Parliamentary Group on leasehold reform, coincidentally published on the same day as Taylor Wimpey’s announcement stated:

“The current government has accepted the sale of new build leasehold houses is a key area in need of urgent reform. The Prime Minister, the Secretary of State and the Housing Minster have each argued strongly that there is no legitimate reason for the sale of leasehold houses unless for the exceptional circumstance where the developer cannot own the freehold.  The APPG supports the proposal to ban the sale of new build leasehold houses…”

There is not a single reason why legislation cannot be brought very soon after the election, to ban the sale of leasehold new houses.  Perhaps each party should make this pledge  in their manifestos.

It was mooted by Sajid Javid  that Help to Buy could be withdrawn for builders not selling on “fair terms” in his speech on 28 March 2017:  “Helping builders to get building“:
So I will look to ensure Help to Buy Equity Loans are only used to support new build houses on acceptable terms. This will send a serious message to the building industry: if you want the government to help you build and sell homes, you have to sell them on fair terms.”

It is time and it is right that Help to Buy is withdrawn.

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Leasehold new houses – the next mis-selling scandal?

Caught in a trap – Leasehold new houses

Given the information, no new homebuyer would ever choose to buy a house with a leasehold title. Perhaps this is why some housebuilders hide this extremely important information from new homebuyers. Even if they do think to ask about the property title, it’s no good saying “People are scared of change because it’s something new. But it’s virtually freehold.” As a Persimmon sales advisor told a reporter from The Guardian.

leasehold new houses

Is it Freehold? New homebuyers are getting caught out by newly-built leasehold houses.

Justin Madders MP for Ellesmere Port and Neston, is calling for a ban on leasehold new houses:

“It is clear this system is being abused to drive huge profits at ordinary ­homeowners’ expense. There is no need for there to be leasehold properties, particularly those on an estate where the properties are mainly detached houses.

“They need to be banned – it may be a convenient way for developers to get extra profit from their building work, but once they get in the hands of these private equity companies the profit motive overrides any considerations that there are real people living in their homes, who are being asked to stump up eye-watering sums.”

As Patrick Collinson reported in The Guardian on Saturday 29 October 2016, a new house built by Taylor Wimpey in Ellesmere Port was sold for £155,000 on a 999-year lease in 2009. Seven years later, the owner was quoted £32,000 to buy the freehold from E&J estates who had bought the freeholds from Taylor Wimpey. Another buyer was quoted up to £40,000 by E&J estates for the freehold of their 2011, 4-bedroom £122,000 house and despite a long lease, another new homebuyer in Manchester is was forced to pay £38,000 to buy the freehold on their recently built home.

Escalating ground rent is another issue. Taylor Wimpey set the ground rent at £295 a year on the Ellesmere Port development, with the contract stating that ground rent will double every ten years!

The Guardian reports:

“Like thousands of others in England and Wales, buyers have been trapped by a controversial trend among housebuilders to sell homes as leasehold when they previously would have been freehold. The buyers are given reassuringly long 999-year leases – but later find that buying the freehold is prohibitively expensive.”

Government figures show that around 6,000 new houses were sold as leasehold last year. Previously, houses on new-build developments were sold as freehold, but leasehold new houses are becoming more common with the likes of Persimmon, Taylor Wimpey and Bellway selling houses as leasehold on their developments. Indeed a third of new houses sold by Persimmon are leasehold, around 4,372 in 2015, nearly three-quarters of all new leasehold houses registered in 2015.

Justin Madders, MP for Ellesmere Port and Neston, whose constituency covers the Taylor Wimpey development says the situation is: “morally indefensible”. 

“I have had a number of constituents contact me, saying they were aware at the time of purchase that the freehold was extra. However, they didn’t know the original developer sold the leaseholds to private investors who have ruthlessly exploited the law to line their own pockets.

“The prices they have been quoted to buy the freehold have rocketed beyond any reasonable sum people can afford. I have found constituents are unable to afford the fees being quoted and there are extortionate charges associated with obtaining permission to alter the property. Just over £2,500 was quoted for permission just to build an extension.”

The Guardian said it is easy for buyers to miss the fact that the new property is leasehold. For example, at Persimmon’s Agusta Park development in Yeovil, Somerset comprising of 2, 3 and 4-bedroom homes, all are being sold leasehold. Yet The Guardian reported there was no mention that the houses are leasehold on either Persimmon’s website, or in the site brochure.

Asking about the lease, Guardian reporters were told it was 999 years and the ground rent was £150, then £190, and eventually that the ground rent would go up every 10 years using a formula linked to the RPI. The Persimmon sales advisor said:

“It’s a 1,000-year lease. If she lives to 100 there will still be another 900 years to go. It’s virtually freehold. Flats are always sold as leasehold. Lots of [house] developments are going this way now. People are scared of change because it’s something new. But it’s virtually freehold.”

And regarding buying the freehold?

“It’s not available at the outset, but can be bought within two years. I’ve no idea. We don’t quote on the price of the freehold.”

Potential buyers allege they are not told about the leasehold until late in the process.

One Guardian Money reader said: “We were about to purchase a new house when we noticed that part of the communal charge for the upkeep of open spaces was for ground rent.” alleging that at no stage was the word leasehold used by the salespeople, nor was it in any of the documentation they signed. The reader said they pulled out of the purchase of the Persimmon home after seeing stories of housebuilders charging large fees just to give permission to make alterations, such as installing a conservatory and tens of thousands of pounds to purchase the freehold.

Developers were asked why they are selling houses as leasehold?

Persimmon told the Guardian:

“Persimmon sells a mixture of both leasehold and ­freehold properties. As Persimmon has acquired other ­companies over the decades, it has inherited the freehold reversions of leasehold properties sold by those businesses. There are around three million leaseholders in Britain. All Persimmon leasehold houses carry an extremely long ­999-year lease and customers are informed at ­purchase what type of property they are buying.”

Persimmon refused to state the typical ground rents charged, how much the company makes from selling freeholds, or the fees charged to leaseholders for approval for alterations or things like building a conservatory.

Taylor Wimpey ­confirmed it had sold freeholds to E&J Estates, but did not disclose the price, and would not comment on the £32,000 E&J Estates wanted for a freehold. They told the Guardian:

“At Taylor Wimpey the vast majority of our houses are sold on a freehold basis. However, in a small number of developments, ­predominantly in regions of the ­country where it is common practice in the market, we sell houses on a leasehold basis. Throughout any sale process, customers are fully informed of the ownership structure of the home. If a customer is interested in such a property, the sales team advises them whether the property is being sold on a leasehold basis.”

­Issues concerning leasehold properties will be top of the agenda for the all-party parliamentary group on leasehold and commonhold next month. Chaired by Labour MP Jim Fitzpatrick and Tory Sir Peter ­Bottomley, has attracted 43 MPs and lords.

Sebastian O’Kelly of the Leasehold Knowledge Partnership – a support group set up to protect and campaign on behalf of ordinary leaseholders said:

“It is disgraceful that plc ­housebuilders are building leasehold houses that ­ordinarily – and until recently – would have had freehold title. This is an ­erosion of the wealth of ordinary people at the expense of the rich.

Young people, after years of paying rent, finally buy a home and then find they are still, in fact, tenants – which is what a leaseholder is – with all the ­vulnerability that that implies.

The housebuilders are evasive over this issue and it beggars belief that the ­outrageous ground rent multiples come from household-name builders. There is no attempt to justify the adoption of leasehold tenure for these houses, which are not complex communal sites such as blocks of flats.”

 

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Make Sure Your New House Is Not Leasehold

Buyer beware: The great leasehold new house scam

When will the incessant greed of housebuilders reach its zenith? Not content with charging premium house prices, large plc housebuilders keep coming up with new ways to squeeze every last drop of additional profit from unsuspecting new homebuyers. It started with overpriced optional extras and upgrades. Then shared driveways and non-existent front gardens enabled housebuilders to cram in even more homes on their developments. Persimmon road not finished 30 months after last home sold.Next came the Freehold house with Leasehold type management charges – inescapable “annual rentcharges for maintenance of communal amenities on the development”, commonly around £200 a year for each home, normally for ‘maintaining’ landscaped areas.

Also becoming increasingly common, are charges for private roads, footpaths and street lighting on developments. These charges are even more galling when builders fail to fully-complete these areas for months, sometimes years after the last house was built and sold.

The website Home Owners Rights Network has been set up to fight the unfairness of these charges and campaign for a change in the law. The Leasehold Knowledge Partnership was set up to protect ordinary leaseholders.

Now some housebuilders have taken fleecing buyers to a whole new level. Selling Leasehold new houses, but at Freehold prices. There can be no other reason for this other than to increase their bottom line. As the Daily Mail reported in May 2015, two new housing estates were being built in on either side of London Road in Peterborough. At the time, Persimmon were building 50 new homes at “The Edge” on the east side, selling three bedroom homes for £158,995 – £180,000. On the other side of the road at “The Sycamores” Barratt were building 80 new homes, almost identical in appearance, with a three-bedroom property costing from £163,995.

persimmon-leasehold-housesWhilst almost identical in every way, there is one significant key difference. The Barratt houses are Freehold but the Persimmon houses were sold Leasehold, meaning that instead of owning their homes outright, these Persimmon new homebuyers have to pay an annual £150 fee in ground rent for the land the property stands on. Even worse if they decide they wanted to add a conservatory or undertake any major renovations, they will have to ask the freeholder for permission.

As the government push for more homes to be built, thousands are being sold as leasehold by housebuilders, many of these inevitably targeted at naïve first-time buyers, unaware of the additional cost and the huge disadvantages that come with owning a leasehold property. It would appear that investment companies are fuelling the rise in leasehold new houses, many seeing it as a way to profit from the annual fees new homebuyers are forced to pay.

The story in the Daily Mail stated: “there are 670,000 leasehold houses in Britain, according to the figures of the Department for Communities and Local Government. In 2013 — the most recent year for which figures are available — the number of owners with leasehold houses had increased by 63,000 in the previous five years.”

Figures from the Land Registry reports show that leasehold properties accounted for 43% of all new home registrations in 2015, nearly double the 22% recorded in 1996.

Traditionally, most leasehold properties have been flats in blocks, where there are communal areas. The service charges cover things like:
  •     Car park enforcement
  •     Communal car park (gates, lighting cameras etc)
  •     Entry phone system
  •     Fire alarm and fire equipment
  •     Landlord electricity and water utility bills
  •     Lift maintenance and safety inspections
  •     TV aerials and satellite system
  •     Buildings insurance
  •     Management administration fees
  •     Accountancy fees
  •     Future maintenance fund for major repairs
  •     Cleaning of communal areas including roads and pathways
  •     Landscape garden maintenance and grass cutting
  •     Membership and upkeep of communal facilities such as swimming pool
  •     Caretakers and porters

Buyers pay an annual fee to the freehold owner — usually the property developer or services firm for the management and upkeep of these shared spaces and services. However, another sting in the tail is, with every year that passes, the property will erode in value as the length of the lease reduces.

So why have housebuilders and developers started to sell individual family houses on a leasehold tenure?

The CBRE says that: “house-builders have become more aware of the benefits of structuring leases in an attractive manner to increase the value of their property holdings seeking to maximise sale receipts on disposal.”

These leasehold arrangements appear to be principally designed as a means of extracting further and ongoing payments out of their unsuspecting customers.  Whether they serve any legitimate purposes is anyone’s guess but I believe it is unlikely they do, or that those purposes could not be met in some other way that does not fix customers with ongoing charges. I am of the opinion that large housebuilders see leasehold tenure as an opportunity to profit twice from the land; once from new homebuyers, who pay freehold prices for leasehold houses and again from either the ongoing charges and ground rent, or from the freehold investment or insurance company, if and when they decide to sell the freehold.

I can see no justification for selling a leasehold brand new house. Some unsuspecting new homebuyers will probably not even realise, until they get a bill from a management company, exactly what tenure they have bought. This is even more likely if the buyer use the housebuilders ‘suggested’ or ‘preferred’ solicitor, something new homebuyers should never do as it raises the question of their impartiality and is a conflict of interest.

With leasehold, in most cases the freeholder appoints a service company to collect ground rents, service charges and manage the land on which the houses are built. Whilst some of these companies are reputable, others might use residents as a cash machine, with ever increasing charges for insurance and maintenance.

The freeholds of large flat developments are commonly sold to one of a very small number of very large companies that buy up tens or hundreds of thousands of these freeholds. Some are unscrupulous service companies who have a track record of making it difficult for leaseholders to their pay ground rents, by not cashing cheques etc. and then claim very large fees and expenses for taking contrived enforcement action against leaseholders for non-payment.

A legal expert recently told me:

“There have been examples where ground rents of £150 per year are due, cheques go un-cashed, and then enforcement fees and expenses of many hundreds, sometimes thousands, of pounds are levied against the leaseholder.  Legal action often follows because the leaseholder duly finds it incredibly difficult to get a response to any correspondence or queries from the companies in question, which then launch legal action on the premise that the debt remains outstanding.  Naturally, further fees and costs are claimed through the court proceedings.  Aggressive lawyers then pursue settlement of the contrived debts and many leaseholders feel compelled to pay large sums to settle those debts to avoid the time and hassle of going to court for what, by then, would be a hollow victory for them given the wasted time and stress they would suffer and the costs they might incur instructing lawyers to represent them.

Whether the situations of leasehold houses would or could give rise to more of this kind of scam will remain to be seen, but given that the same big housebuilders who have been doing this on leasehold for years are now imposing comparable arrangements on freeholders, I think it is a fairly safe assumption that this will happen, blighting many more unsuspecting homeowners’ lives.”

In a worst case scenario, freeholders have the power to force forfeiture of a lease where the entire asset is seized and the leaseholder evicted from their home for failure to pay sums owed to the freeholder. This case, which was ruled the leaseholder’s favour eventually, concerned non payment of the Freeholder’s £76,086.20,  legal costs. with the leaseholder having  paid off the original disputed £7,548 service charges years ago.

According to Savills, investors have poured around £1.2 billion into residential properties with ground rents. At a time of ultra-low interest rates, ground rents are viewed as a steady stream of income. The investment company can also choose to resell the freehold to another buyer.

Under the Leasehold Reform Act, leaseholders have a right to buy the freehold at a later date. How much it will cost depends on the value of the home, the ground rent and the years remaining on the lease. It can cost several thousands of pounds. In the meantime, if a leaseholder wanted to make changes to their house such as adding a conservatory — they must seek permission from the freehold owner of the land.

As the remaining lease reduces each year, the property loses value. But extending a lease is not cheap either! For example, it could cost around £4,167 to buy the freehold of a £250,000 house, with a ground rent of £250 a year and 995 years left on the lease, according to figures from Freeholdcalculator.com Legal fees could add another £3,000.

It gets even more expensive as the lease reaches 80 years. For a £300,000 property, it could cost £10,000-£12,000 to extend a lease with 80 years left compared to around £5,000-£8,000 with 89 years unexpired. As reported in another story Daily Mail reporter Ruth Lythe, told how families in Cramlington, Northumberland, cannot now sell their houses as their leases are about to fall below 80 years. When owners asking to extend their leases they are being quoted £8,000 to £14,000 by management companies.

Persimmon told the Daily Mail:

“only around a third of the houses it built over the past three years are leasehold, with ground rent reviewed every year.”  Only? Out of a total of 39,609 new homes built by Persimmon in 2013-2015, (assuming 10% were flats, as in 2015) this equates to 11,883 new houses sold by Persimmon as leasehold since 2012 – 3,960 a year.

Miller homes are apparently, also selling leasehold houses. A Miller Homes prospective buyer telling me that when they found out the houses were leasehold and, as they were walking out the door the sales agent said, “oh but for £4,500 you can buy the lease.”

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