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Campaigners celebrate as regulator savages home builders over leasehold mis-selling

Leasehold Knowledge Partnership says its years of campaigning on leasehold reform has been 'spectacularly vindicated'.

Nigel Lewis

leasehold

An industry group founded by a former property journalist says its campaign to end the mis-selling of leasehold properties has been ‘spectacularly vindicated’ by the competition regulator’s announcement that it is to launch enforcement action against several high profile house builders.

In a 31-page report, the Competition and Markets Authority (CMA) says it has found troubling evidence of potential mis-selling and unfair contract terms in the housing sector, and is set to launch enforcement action. The CMA estimates that 25% of sales since 2000 have been leasehold apartments (19%) and houses (6%) and that at least 13,000 home owners are trapped by unfair ground rent terms.

The Leasehold Knowledge Partnership (LKP), which is fronted by former Mail on Sunday editor Sebastian O’Kelly (above right), says its long campaign to highlight the dark side of new-build properties, and in particular leasehold houses, is borne out by the CMA’s damming report into the sector.

The allegations are both broad and detailed including evidence that house builders have been aggressively promoting unfair ‘doubling’ ground rents and misleading vendors about the cost of converting their homes to freehold ownership.

It is also claimed by the CMA that builders have failed to tell buyers that their home is being bought via leasehold or what that means; and been charging unreasonable fees for the maintenance of common areas and home improvements.

“We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of,” says Andrea Coscelli, the CMA’s Chief Executive.

“Buying a home is one of the most important and expensive investments you can make, and once you’re living there you want to feel secure and happy. But for thousands of leasehold homeowners, this is not the case.”

One agent’s reaction to the CMA report.

“To anyone who manages leasehold developments the findings of the CMA probe into the industry will come as no surprise whatsoever, ” says James Tarr, Head of Leasehold Managemnt at Andrews Property Group.

“The sooner the leasehold sector becomes regulated, the better. That will solve a significant percentage of the problems that are occurring almost immediately.

“You need to have a situation where conveyancing solicitors and developers alike are obliged to spell out the full meaning of leaseholds, in plain English, before any transaction takes place.

“Whenever we take on a new development we always hold a residents’ meeting and explain the basics of leasehold and why the owners need to pay a service charge.

“There’s often a huge amount of confusion as to the difference between ground rent and service charges, and in some cases residents have been told they can even opt out of these charges.

Read the CMA report in full.

Read more about the Leasehold Knowledge Partnership.

 

March 2, 2020

2 comments

  1. Response to above comment – Ground rent is for no service, there is no need for it. Leasehold properties have not sold for much less than freehold ones in recent times to reflect the ground rent burden. It is there purely to provide an income stream, often to a remote offshore investor. Ground rent above £250 per year can make a property an assured tenancy, and above 0.1% of property value can be seen as onerous by some mortgage lenders, so linking to RPI does not help here and RPI is an unknown quantity.
    The service charge is more transparent and covers the cost of running the building.
    Developers can charge more upfront if necessary so home buyers know exactly what they are getting for their money. Ground rents and other unnecessary fees to remote freeholders have been abused in recent years and give no benefit at all to leaseholders. There is wide recognition now that leasehold is not fit for purpose and a few minor tweaks is not enough. Leaseholders are suffering with out of control costs including ground rents, permission fees, service charges and lease extension costs.
    If leasehold is to continue, new leases should be 900+ years, zero ground rent, permission fees capped at £10, and a residents management company put into the lease so residents can control their costs by managing the building themselves, or appoint their own managing agent.
    Cap existing ground rents at a maximum of £250 or 0.1% of property value, whichever is least. Enfranchisement cost to be 1% of property value or 10 X ground rent, whichever is least.
    It is well past time England and Wales got rid of this abusive system, and used Commonhold which is used everywhere else in the world.

  2. A ground rent is for no service and the lease confirms that point

    Therefore it is a financial burden on the property and the amount of that burden the purchaser takes on should be disclosed along with the premium paid for the lease or the purchase price of the lease when bought second hand

    The Net Present Value of this rent using a prescribed discount rate with an online calculator is what is required and therefore there is nothing wrong with any ground rent PROVIDED it is fully disclosed so the purchaser can reflect on its value when formulating an offer

    A lessee should have a right to extinguish the ground rent on payment of the appropriate premium and as this would not involve extending the term there would be no requirement to have the property valued and therefore the costs of this exercise should not be challenging and a simple deed of variation in prescribed form necessary to record the removal of just the rent so the legal costs should be low if needed at all – further the right to lower the rent should be available to a mortgagee who if they find themselves in possession can remove the rent – this hopefully will also remove some of the lending criteria on ground rents which is acting as a road block to many sales at present

    I do find it surprising that. Ground rent linked to the RPI is seen as problematical – it’s a published index of many years standing and the calculation of the new rent is hardly complex – there would be a near riot if the state pensions link to the RPi on. Yearly basis was decoupled

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