/ Home & Energy

Have you had an issue with the leasehold on your home?

new build

Last week’s announcement that the government would look to ban new-build houses being sold as leaseholds has certainly stirred up strong emotions.

Ground rent doubling clauses – which are at the centre of the argument – have been described as everything from a ‘scandal’  to ‘the great British leasehold rip-off’. Under new proposals, the government would see this practice banned, but have you ever had an issue with the leasehold on your property?

What’s the problem?

The issue primarily surrounds housebuilders inserting ground rent ‘doubling clauses’ into agreements on new-build houses. This can render the properties essentially worthless in the long run.

As we reported last week, a ground rent that stands at £250 a year now could, in theory, cost £8m a year after 150 years, a possibility that can make a property impossible to sell on.

Another issue is unclear freehold ownership. In recent years, developers have been known to sell off the freehold of properties to investment companies without formally letting the leaseholder know. Legally, this is allowed, but for many homebuyers, it’s resulted in escalating costs and frightening quotes to buy their freehold further down the line.

A new proposal by the government seeks to tackle these issues by outlawing the sale of new-build houses as leaseholds.

Those defending housebuilders, however, see it as a way of them making schemes ‘financially justifiable’, or offer an argument that there’s no such thing as ‘pure ownership’.

How will this affect you?

The government’s crackdown on leaseholds is likely to affect anyone involved in the buying or selling of leaseholds, but for some, it may be little consolation.

Homebuyers While the government is planning to put a stop to ‘unfair leasehold practices’, it’s unlikely to help those buying a leasehold home right now. We’ve already seen buyers have their mortgage agreements withdrawn as their lender has been alerted to a ‘doubling clause’.

Existing leaseholders The biggest victims are existing leaseholders, who bought their homes a few years ago. People already trapped have reported sizable remortgaging fees, over-the-top charges for making structural changes and unfair quotes to purchase their freehold. It remains to be seen whether the government will intervene to help existing leaseholders.

Conveyancers Conveyancers could be in hot water for not offering sufficient warning to people who have been stung by the doubling clauses.

Investors Depending on how the government decides to act, there could be ramifications for people who unknowingly have freehold and ground rent investments as part of the pensions or portfolios. Major freehold investors could also get caught up.

Developers As well as losing out on the fruits of selling freeholds on new-build homes, housebuilders could have to set up significant compensation pots for existing leaseholders who have faced problems. Taylor Wimpey has already addressed this by setting up a £130m fund, but some have warned that this is only the tip of the iceberg.

Mortgage lenders So far, Nationwide has already pledged that it won’t rubber-stamp mortgages on properties with unfair leasehold clauses, and other lenders are likely to come under increasing pressure to follow suit should the government’s proposals go ahead.

Over to you

There’s clearly a great deal of concern about these practices, but at a lower level there’s also bemusement about the ground rent system in general.

From sinking funds and collective enfranchisement to peppercorn rents, there’s an argument that the maze that is the leasehold system needs top-down reform.

If you’ve bought or are buying a leasehold home and have experienced problems or think you might be affected, get involved in the conversation below or drop us an email at money-letters@which.co.uk

Comments
Guest
Patrick Taylor says:
2 August 2017

Rather late to the problem for a consumer organisation of the size of Which? I would find it rather hard to say anything else other than to criticise the charities absence from this area for so long.

However does this mean that Council of the charity are going to support leasehold reform? Or other bold steps.?

From the Scottish experience in 2007-12 it is a shame lessons were not drawn then as applicable to the English legal system. The same national builders being involved in sharp practices aided and abetted by a system were the solicitors/conveyancers were on builders panels being fed a stream of innocent buyers.

It is a huge scandal and I trust the Consumers Association , the owners of Which? will get deeply involved.

Profile photo of John Ward
Guest

The article did not make any reference to the situation of leasehold properties in combined developments like apartment blocks and maisonettes. Although it consistently referred to new build houses it is worth making clear that the same government action will not all apply to combined developments. It might in respect of a ban on periodic ground rent doubling clauses [or other automatic ground rent escalators] and on selling freeholds without notifying the leaseholders, but there is no intention so far as I can see to stop the building and selling of flats on leases; this is necessary to ensure there is adequate control over the common parts of such buildings and over internal alterations that might adversely affect other leaseholders.

A point not mentioned is that the doubling clauses and the selling of freeholds to investment companies had a potential adverse impact on the tenants of leaseholders since the higher ground rents would have to be recovered through the monthly rents. They should be spared this implication in future.

I do not see the point of criticising Which? for not addressing this problem earlier. They can’t do everything at once. The government has now pronounced and action is in train – the notion that Which?’s intervention would have prompted an earlier resolution is fanciful.

I agree that lessons might have been learned sooner but the introduction of leaseholds into new residential developments made it possible to offer houses at lower prices where otherwise they might not have been affordable. This gave the market a temporary boost but it was clearly stoking up problems for the future, not just in terms of the escalating ground rents but the difficulty in selling and buying the houses at a later time because of mortgage eligibility constraints. It is worrying that property professionals and advisers were not drawing attention to this and that mortgagees were not alerting their applicants to the implications of the clauses. It makes you wonder whether they were paying attention themselves, as it affected their asset valuations, or were in cahoots with the builders/developers.

Guest
Kev says:
4 August 2017

I cannot see how houses were more affordable under leasehold. The original landowner sold the land to say Wimpey so it was all freehold owned by them. Wimpey chose to make some homes leasehold. The price difference was £3000 in many cases. So why did they bother? So they could sell them on to investment companies. The buyers did not know they could do that. It is all a scam.

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Guest

Fortunately I am not affected. As you should normally have a solicitor acting on your behalf are they not liable if they have not drawn your attention to the consequences of an escalating lease clause? Could they be sued?

I wonder whether Which? mortgage providers have encountered this problem when arranging mortgages for their clients.

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Guest

My thoughts entirely, Malcolm. This was suggested in the Intro in the paragraph starting “Conveyancers”.

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Guest

But it did not indicate whether the conveyancers had any liability. That seems crucial. Otherwise we seem to be relying on the goodwill of Taylor Wimpey and the like to compensate purchasers and buy back the leases.

Selling on leaseholds to profiteers is very reminiscent of Private Finance Initiatives. Local authorities, for example, could have capital work done by a contractor – a new raod lighting installation say – but instead of paying for it they would pay an annual charge for, say 25 years for the capital, maintenance and running costs. The contractor would finance it with a commercial lender. These contracts could become good money earners, so contractors would sell them on to third parties who had no connection with the work but simply set out to make cash. Charging £300 to change a light bulb allowed by incompetence in the drafting of the contract.

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Guest

“Expedience” should be added to the list of deadly sins. Short-term gains for long-term costs. It should not be permissible to trade in financial instruments without the other party’s agreement. In the example you cited it will be the future council tax payers who suffer, not the members of the authority that did the deal.

Guest
Patrick Taylor says:
2 August 2017

According to sources the conveyancers/solicitors are likely to be sued [ and successfully] if they did not explain the import of the 10 year doubling clauses. However early days.

Any sensible solicitor would have explained the clauses and if the client still wished to buy then get the clients signature on a note rejecting his advice.

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Guest

Is it not the sellers, and the sellers’ agents, who are under an obligation to disclose all relevant material facts? Are we sure that no mention was made of the leasehold status and the ground rent clauses in the property particulars? Surely, that is why Taylor Wimpey are making financial provision for possible negligence claims.

I don’t exonerate conveyancers who ignored such matters – they are both significant and highly material to the purchase and should be drawn to the buyer’s attention, but are we sure that they did overlook them? Given that acceptance of those terms made the new houses affordable for the buyers it would not surprise me if they saw them as a benefit at the time. People don’t always pay attention to what their legal practitioners tell them if it would frustrate their plans.

I exclude the possible transfer of the lease to another party because the original freeholder could equally raise the ground rent at the specified points under the terms of the lease.

Profile photo of malcolm r
Guest

I think the transfer matter shows that TW understood they had a valuable asset in the ground rent clause and could release substantial capital by selling them on. Equally the purchaser of the leases must have seen exceptional value in them. However, a way of looking at it is to compare the ground rent inflation to house price inflation. In the last 50 years house prices have risen by 46 times their original value. If they had this ground rental clause, the ground rent would have risen by 32 times. It reflects the change in value of the land on which the house was built. However, I do not suggest a stand alone property should be sold other than freehold.

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Guest

Exactly. Selling on contracts like that for those purposes should be banned.

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Guest

Yes that is the theory but it is a fiction when talking about peoples homes. The value of the land under my house is totally irrelevant in any real way as it is not about to be demolished for profit. People dont think oh how much is the land worth rather it is the house we pay for.

Guest
Dave Smith says:
4 August 2017

You would have hoped so Malcolm, that a solicitor acting our behalf should have flagged definitely these clauses, so why are so many caught out you might ask – a common theme – buyers used recommended solicitors from the sellers panels, as they promised to meet completion deadlines, etc. These solicitors didn’t flag these clauses (which incidentally, are very cleverly hidden amongst the legalese and spread across different clauses on different pages – surely no accident), and certainly the firm I used – like many – conveniently no longer trade. The suspicion is that firms are set up to handle a developments sales and work with the developers, and once the development is sold out – close down.

Guest
c.l says:
5 August 2017

I don’t accept your argument.
1. leases are very complex legal documents in legal jargon. buyers cannot be expected to understand them.
2. risks of forfeiture, doubling ground rent, restrictive covenants should be explained in plain terms.
3. buyers deserve same protection whether read English or not.
4. solicitors and lawyers industry benefit greatly from this flawed system.
5.Leasehold should be abolished.

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Guest

I think there is a lot in what you say, Dave, and I think the use of ‘tied’ conveyancers is at the root of the problem. But even if the house-builder did not sell the freeholds on they would have been able to take advantage of the ground rent uprating clauses themselves. I am glad the government is proposing to ban leaseholds for new houses, but so far as I am aware no mention has been made of any relief for existing leaseholders; they should at least be given the opportunity to buy the freehold themselves if the freeholder has any intention of selling it to a third party.

On the question of the value of land, the developer knows how much they bought each site for. They then carved it up into plots, invested in planning consents, roads, drains, sewers, and so on, and laid it out for development; that is the investment on which the ground rent represents a return and it is perfectly possible to attribute a value to each plot for the purpose of calculating what the ground rent should be. At the end of the day the owner of the freehold wants a certain return from each plot but for ground rents to double every ten years without reference to any other economic considerations is tantamount to exploitation.

With many of the major housing developments these days an investment company assembles the site, gets outline planning approval, and provides or procures the essential infrastructure [roads, drains, sewers, water, gas, electricity and telecoms], and then parcels it out to a number of house-builders [such as Taylor Wimpey, Persimmon, Bovis, etc] who each have to buy their portion from the investment company when the development is complete. They are required to cooperate with each other and not frustrate sales by their competitors. I should have thought that selling each property freehold was the fastest way of getting their return so I don’t know how, or by whom, this leasehold alternative was introduced. If Taylor Wimpey are having to set aside some financial provision to meet a potential liability for any wrongful selling of houses leasehold perhaps others will have to as well and the the economics of the idea will be blown inside out.

Guest
Dave Smith says:
5 August 2017

John : From my background reading about this scandal, the practice of monetising leases with a view to selling them at huge prices (as typically freehold are sold as a multiple of the ground Rent – so to make them more profitable – include ratcheting GR clauses hidden across the lease. Make no mistake, they could have been stated clearly in one clause, but no, it was designed to be hidden. The practice started in the North West in the mid noughties, and have spread across the country as word spread through the construction and investment industries. I have seen a time line somewhere (but can’t re discover it) of how the doubling and ratcheting using RPI of ground rents have spread. It is still very heavily centred on the North West. You may know that Roger Southam, Chair of Leasehold Advisory Service is a controversial figure who is chairman of the quango, which speaks volumes about Lease being on the side of Leaseholders. He is a long-term property manager, who sold his company Chainbow to Savills, where he is now employed. In the past, he has advertised his services to freeholders in order to “maximise ground rent incomes”. An indefensible conflict of interest, (google it) thus my confidence in Lease as an instrument of change is non existent. Freeholds are now bought and traded by long term investment firms, as on the face of it , they have an ever increasing passive income, for delivering zero service to leaseholders. Ground Rent is indeed – money for nothing.

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Guest

I agree with you, Dave. You have said it all.

Guest
David Blke says:
10 August 2017

Hi Malcolm,

Which? Mortgage Advisers have encountered an issue with arranging a mortgage where the lease has a punitive service charge. Some lenders have taken the stance of not lending against leasehold properties where they cannot assess the applicants ability to sustain the mortgage with increasing costs. I suspect we will see more lenders take this stance moving forward.

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Guest

DS – The idea that conveyancing firms arose and disappeared with developments is an interesting one. In any event there is no reason why you cannot name who did your conveyancing, and the developer.

If there is indeed a pattern in the conveyancing panels it would be interesting. I believe that Shoosmiths, were/are? on Barretts panel in the Midlands.

Guest
Patrick Taylor says:
2 August 2017

JW ” I do not see the point of criticising Which? for not addressing this problem earlier. They can’t do everything at once. The government has now pronounced and action is in train – the notion that Which?’s intervention would have prompted an earlier resolution is fanciful.”

I beg to differ John. A decade is a long time to be unaware of a problem that has significant effects on housebuyers. I take it you are not a Guardian reader, and I assume not an ordinary member as I wrote to all 6598 in late June mentioning this matter and linking to resources about it.

Which? Financial Services have been arranging mortgages since around 2010 and it does seem difficult to understand that they, let alone Which? were so outside the loop of what goes on. One might think Which? Legal might possibly have come across the problem also.

I really feel despondent that you think a Which? intervention would not have forced an earlier resolution. I have more faith in its leverage powers – if properly applied.

And if it did nothing else it could have shown some of the obscene clauses left unexplained by panel solicitors suggested by the builders. Apparently 70% of buyers go with the panel of solicitors chosen by the builder. There is also apparently inducements offered for this to happen according to some reports. Whether you consider that solicitors chosen for a panel wish to jinx the arrangement by pointing out nasty clauses is up to each reader to decide.

According to one report over 100,000 people are affected so it is not a trivial matter. And of course Govt action is the symbolic closing the door after the horse has bolted. It does nothing for those currently affected.

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Guest

I don’t dispute what you say, Patrick – but what is the point of criticising Which? now? How will that change anything? I appreciate that you have your views on what Which?’s priorities should be, but not everyone will share your opinions. I am sure Which? is well aware of what you [and I sometimes] think it should be doing but it chooses to act differently; I can live with that as there are other fish to fry.

Guest
Patrick Taylor says:
3 August 2017

John. The reason for criticism is to highlight the problem and learn from the experience.

I am aware that there are other consumer problems. However in terms of cost and importance to people housing has to be one of the biggest items by far. The question that I can think everyone would think fair is how did Which? miss it. Or perhaps they did not but preferred to do nothing. This would fit in with your other fish to fry I assume.

Of course there is a difference in doing nothing , doing a few articles, or making it a campaign

Council. elected partly by subscribers, are meant to be in control so it one would hope they can answer the question. Assuming it was not deliberately ignored then the question is how good is Which? at foreseeing problem areas.

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Guest

I confess that I have very little interest in how Which? plans its workload and selects its priorities. I just react to what turns up. I take the view that, overall, it covers the field that consumers want – hence the concentration on cars, technology, domestic appliances, the price of consumer services like insurance, communications and energy, and various lifestyle issues.

I have to say that not everyone saw leaseholds for new housing as being a big problem and I do not regard Which? missing it as a wrong call. Perhaps in your eyes I am too positive towards Which? – maybe so, but I have no appetite for constant pecking at it and consider it off-putting to new readers.

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Guest

You are of course entitled to your view John.

I do not wish to provide chapter and verse in this Forum and would dearly love the Member Community Forum to work as envisaged so these matters could be dealt with discreetly. By some mischance it is not available to all subscribers or even Ordinary Members and has been very little advertised. Launched in November 2014 it did not even rate a mention at the AGM that month.

One might believe, and several do, that Council asked for a Forum [they did] but left the execution to an Executive who did not want members to have a channel to talk to each other – and importantly to the Trustees.

” I take the view that, overall, it covers the field that consumers want “. There is that but also I have a higher expectation of the public and believe if they are aware of gross injustices they want them sorted out. But for the grace of God go I.

I am not clear how the consumer association as a charity cannot be more active than simple reviewing product … note object 2.

Charitable objects
(1) to promote for the benefit of the public impartial and scientific analysis of and research into:
(a) the standards of goods and services available to the public as consumers;
(b) ways in which the quality and availability of such goods and services may be maintained and improved for the public benefit and to publish and disseminate the results of such analysis and research to the public;
(2) to advance and disseminate knowledge of the laws of the united kingdom and other countries and in particular (but without prejudice to the generality of the foregoing) the law relating to consumer protection in the united kingdom and other countries
(3) to carry out research into the law of consumer protection in the united kingdom and other countries and to publish and disseminate the results of such research to the public;
(4) to promote and advance the education of the public in all aspects of public health and in the principles of physical and mental health; (5) to promote in a manner beneficial to the community the improvement of the skills of horticulture and good housewifery

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Guest

Patrick, you say “ would dearly love the Member Community Forum to work as envisaged so these matters could be dealt with discreetly.

I asked some while ago through the community:
Which? Member Community
This forum is very little used. Will Which? publicise its existence to all Which? Members through email where possible and through the magazines? A regular report in the mags, as happens with Convo, would hopefully encourage more members to engage with Which?.

It could also do with being made more user friendly. The Convo model seems to work well.

The reply was:
“Thanks for your comment about the Member Community. We’re not currently planning to increase mentions or make changes to the model but we continue to monitor this and appreciate you registering your feedback.

It does seem a shame that there is not a more discreet route where we could discuss CA matters.

This is well off topic. Sorry 🙁

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Guest

Hello all, thanks for your comments. To clarify, this convo is here to gather views of what is going on – as you know, we often do this on convo as it’s a great way for us to reach wider audiences. I appreciate that it’s frustrating, but @johnward is right in that sadly we can’t do everything all at the same time – as much as we all want to. Real life experiences count for a lot and often show a lot more than the stats, so we’re hoping that this discussion, the social media posts and the news story will help us gather this.

Can I please remind you that it’s important that convos stay on topic for the purpose of maintaining a good discussion that is welcoming to all newcomers. Please do take any off-topic discussions to The Lobby https://conversation.which.co.uk/travel-leisure/the-lobby/

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Guest

It might be useful for a moderator to transfer an off topic comment to the Lobby and leave a note to that effect, rather like when you remove a contribution. It is difficult for contributors not to respond to comments that might well raise questions of some importance. Just a suggestion.

Alternatively a contributor could of course say they were responding in the lobby, but would others follow suit?

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Guest

Transferring individual posts is far more time consuming than you might imagine, Malcolm. I suspect it’s the best way to say they’d be responding in the Lobby, and then it’s up to the other party.

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Guest

I agree, if the moderators don’t get to it in time, but that does rely on contributors dealing with it.

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Guest

1m homes are leasehold and are falling into the trap of enormous costs when they want to buy the freehold esp. if it has gone under 80 years.

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Guest

The shorter the remaining lease the less value the freehold has to its owner, especially if the ground rent is fixed, but it has considerably more value to the leaseholder because without buying the freehold, or a new lease, their property would decline in value at an accelerating rate. It is a matter of delicate negotiation to find out where the two interests meet.

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Guest

Value for money of new build housing would make a good topic – comparing the products of different builders. We bought on a new estate where a large and a smaller builder had developments. Prices for “equivalent” properties were, of course, similar. But the contrast in room sizes, fittings, quality of build and finish, was remarkable. Such is the panic to get on the housing ladder that anything with a roof and walls seems to attract buyers. We could rate builders perhaps in the same way we rate other major providers, and guide people on the sort of things to look for when contemplating the purchase of a new build.

One trick seems to be to furnish a show home with undersize furniture, miss storage furniture like chests and wardrobes in bedrooms, a cupboard to store your vaccuum cleaner, ironing board and other such stuff for example.

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Guest

I support you on that 100%, Malcolm. We have looked at countless new developments – often purely out of interest to keep up with trends and not with an intention of buying – and the differences in specification and build-quality are indeed remarkable. Buyers certainly need guidance through the minefield.

Show homes are nothing but illusions. Notice the enormous mirrors and other reflective surfaces and the multitude of lamps. To me they are havens of appalling taste but some people admire them and aspire to replicate them.

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Guest

Slightly off-topic but if you watch Escape to the Country type programs, you have to laugh when they walk into a poky room and say ‘lovely and bright in here’. They never seem to notice all the lights are on !!!

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Guest

I have been looking at the number of houses built in France,and Germany. France with a similar population builds twice as many houses a year as the UK. It also has more people applying for building permits each year.

I think that a major problem for the UK has been the wiping out of small house-builders who by the very nature of the business needed to continually be building. The sharing of the majority of building land between some major builders has given them the power to play the market. This is of course my gut reaction from reading and looking at the profits of the major builders.

The quality of design and build is highly variable and my contact in the infra-red photography market tells me new houses are the most frequent users of their services. My Which? member contact as a supplier of insulation to the house building industry is equally concerned and even he has had problems with the NHBC sorting out problems.

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Guest

My wife is a constant watcher of Escape to the Country. She’s made the point many times that when they call a view ‘breathtaking’ it’s in breach of the Trade Descriptions Act. She probably has a point, since so many of the views I’ve seen when she’s called me have been of fields and plains. In the room she watches both the South and West windows show the Carneddau range marching across the view, deeply forested on the lower levels and with a river separating the valley sides.

Me, I don’t even think that’s ‘breathtaking’. You need Loch Ness, the Western Isles or Switzerland to qualify for ‘breathtaking’.

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Guest

For me the Grand Canyon that hopefully won’t have to worry too much about new builds.

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Guest

Especially the view from the Hualapai Indian Reservation walkway.

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Guest

Unfortunately it opened after I was there last.

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Guest

When looking at new houses in the areas I was considering moving to I was put off by the small rooms, lack of storage space and high prices, though the latter did not seem to put many people off purchase. According to this article, the UK has the smallest new homes in Europe: http://www.telegraph.co.uk/finance/property/10909403/British-homes-are-the-smallest-in-Europe-study-finds.html
and: http://www.independent.co.uk/money/spend-save/uk-homeowners-smaller-properties-prices-rise-housing-marking-future-downsizing-a7739926.html

We seem to have gone off the subject of leasehold property.

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Guest

I have to say that, although we live not that far from an area which has a lot of leasehold properties, I hadn’t realised it was a major issue.

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Guest

Perhaps you should read the Guardian : )

Edited to add

This is almost black humour as resident owners try to take over the management of a block of flats from the freeholder.
http://www.leaseholdreformnews.com/elim-court-rtm-company-limited-v-avon-freeholds-limited-2017-ewca-civ-89/

“Perhaps most telling in the conclusion of the Court of Appeal in Elim are the concluding paragraphs – ‘I have drawn attention to the Government’s policy that the procedures should be as simple as possible to reduce the potential for challenge by an obstructive landlord’ (para.77). There is also the observation that this is the third attempt by the RTM company to take over the management of Elim Court. Lord Justice Lewinson goes on to say that the government may wish to consider simplifying the procedure further.”

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Guest

I like to think I keep a close eye on the property market and housing matters generally, especially from the point of view of prospective purchasers, and also on the conduct of estate agents. As well as other publications I read a property supplement every week in the regional newspaper that covers the whole field including pre-owned houses, auctions, lettings and new-builds. However, I admit that until quite recently I was unaware of the leasehold status of many new houses or the problems caused when their freeholds are sold to investors. There do not seem to be new-build leaseholds in our part of the country which might account for my ignorance. I expect the problems have come to light because the developers have only now started to sell their freeholds as their market value has appreciated, and because first-owners are now starting to sell their homes and running into difficulties with buyers whose lenders don’t like leaseholds.

The use of leaseholds to improve the affordability of new houses is, I believe, a relatively recent development and is different to the conventional practices with the flats in apartment blocks which are almost exclusively leasehold. I was under the impression that when the freeholder of a block of flats wished to sell the freehold then it was a requirement to offer the freehold interest to the leaseholders collectively at the same time. This clearly does not apply in the case of individual houses where the freeholds have been put up for sale in a bundle by the property developer in order to realise the asset value.That strikes me a being plain wrong, and the leaseholder should be entitled to acquire the freehold rather than have it pre-empted over their head.

I strongly endorse NFH’s comment below and support the case for moving to Commonhold in place of Leasehold interests for properties in combined developments like apartment buildings, office conversions, etc.

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Guest

Hi @malcom-r,

Some really interesting thoughts, thanks.

Value for money of new-builds generally compared with existing properties is something I’ve been thinking about a lot recently. While the available data on this has a time lag, it does seem that new-builds are increasing in price at a considerably quicker pace than existing properties – perhaps propped up by the Help to Buy scheme.

Regarding show homes, you’re spot on – I wrote about the ‘tricks of the trade’ when it comes to furnishing show homes here last year: http://www.which.co.uk/money/mortgages-and-property/new-build-homes/guides/viewing-a-show-home

Cheers,

Steve

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Guest

Keep an eye on the Which? news page over the next couple of weeks, we have something very interesting coming up on the subject of ‘tiny homes’!

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Guest

Thanks Stephen – Would you be so good as to post something here when you release your piece on tiny homes? I don’t routinely look at the Which?news pages.

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Guest

Of course, I’ll let you know. Have a good weekend.

Guest
c.l says:
5 August 2017

we should be under no illusion that the problem is “doubling ground rent” or “the evil developers” ; It isn’t; These are only the symptoms; The PROBLEM is THE LEGISLATION and the WHOLE LEASEHOLD SYSTEM (including conveyancing, lawyers and tribunals); Politicians will do nothing UNLESS they re pressured by their own constituents. we need a CLEAN BREAK from “leasehold system”; Scotland did it; we can do it! Abolish leasehold=problem solved!

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Guest

Leasehold should be banned on all new residential property, not only on houses, but also on flats. England and Wales is the only jurisdiction where leasehold remains the standard on residential property, and it is totally unjustified. For flats, it should be replaced with commonhold, whereby the flat buyer automatically receives a proportionate share of the freehold. It should become unlawful to sell new residential leaseholds.

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Guest

For those untroubled by the woes of others who do have leaseholds it seems to me that when people cannot sell their flats because of onerous ground rents then that is criminal given they have paid for the services of a professional .

I have strong views as I used to deal with the manager/owners of 75 blocks of flats and have owned and lived in two myself. I have also granted mortgages for purchases to young hopefuls and it does grieve me that many have been so crippingly disadvantaged.

I can only thank the Nationwide for so publicly calling a halt to this merry-go-round in May. As a mutual it has apparently higher standards then most . It is worth seeing the conditions.

“5th May 2017
Nationwide Building Society is taking steps to protect its mortgage members from onerous leasehold terms and escalating ground rents with a new valuation policy for new build leasehold properties.
The Society is the first major lender to impose fairer and more transparent lending conditions on these homes. For valuation purposes on all new mortgage applications on new build properties received from 11 May 2017, the minimum acceptable lease term on new build transactions (including office conversions) will be 125 years for flats and 250 years for houses.
In addition, the maximum acceptable starting ground rent on all new build leasehold properties will be limited to 0.1 per cent of the property’s value.
The ground rent must be reasonable at all times during the lease term, with unreasonable multipliers such as doubling every five, ten or fifteen years not allowed. Escalation should instead be linked to a verified index, such as the Retail Price Index. If the valuer believes the marketability of the property will be severely affected by unreasonable lease terms, they may decline the property, or reflect those terms in the valuation figure they provide to the lender.”

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I also heartily applaud the Nationwide’s stance and its new conditions.

The fact that this was initiated just a few months ago suggests that this has only recently become a major concern.

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Hi Patrick,

We’ve seen an example of Nationwide’s crackdown on this in practice, and they’re certainly following through with their pledge. It remains to be seen what other major lenders do in this space – perhaps they are waiting for the outcome of the consultation before making their moves.

Cheers,

Steve

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I just hope the Nationwide haven’t painted themselves into a corner and aren’t adding to buyers’ difficulties in getting finance for their purchase. It’s the right move but it needs cross-industry support.

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It would be interesting to hear Which? Mortgage Advisors views on not giving loans for properties with “unacceptable” leasehold terms. There are times when buyers need protecting and this seems to be one.

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Really useful quote from experts with integrity.

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I might suggest that a consumer charity should be ahead of a entity whose business is making money not several months behind. To be fair Nationwide has to have an element of self-interest as repossessing houses that are unsaleable is not good business sense.

As for the first cases being highlighted in the mainstream media it was in 2016 or earlier and if we look at campaigners National Home Owners Alliance was founded in 2012. Their annual survey March 2015 records:” The leasehold and freehold system is causing widespread concern across the UK, with 42% of adults saying it is a serious problem. In London, East Midlands and East of England, around half of people say it is a serious problem.”

They appear to be a driven and focused organisation:
” National Trading Standards Estate Agent Team’s new draft compliance guidance – the document exclusively revealed by Estate Agent Today recently. On the final page there is a list of the organisations thanked by NTSEAT for their help reviewing the draft.

There were the usual professional bodies like NFOPP, NAEA, RICS and INEA (and it was with the gratefully-received help of the latter that we got the story). NTSEAT’s thanks also went to the three redress schemes and various council trading standards divisions.

But sticking out like the proverbial sore thumb – in a good way – was the listing of the HomeOwners‘ Alliance. This is an online body led, so its website suggests, by a random and small group of enthusiastic middle-class home owners.

Its mission, it says, is “to take the stress, uncertainty and unnecessary expense out of buying and owning a home” and to help would-be owners realise their ambition. It takes the view that existing and future owners are amateurs facing an array of mortgage and property people who are full-time professionals. That’s not always fair, it believes.

Whether we agree with that or not, the HOA was the only consumer-facing body (as opposed to complainant-facing) which, at this stage of the guidelines, appears to have been asked for input.

And it was this fact that struck me as being interesting. NTSEAT had not asked, say, Which? – the organisation that for years has been described (usually by itself, to be honest) as the consumers’ champion.”
https://www.estateagenttoday.co.uk/features/2015/7/homeowners-alliance–an-organisation-to-watch

Just a heads-up for anyone looking for the next scandal to surprise us:
http://www.betterretirementhousing.com/category/news/peverel-price-fixing-scandal/

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Patrick – I agree with you that retirement housing is certainly a train coming towards us in a one-track tunnel. It is has grown massively over recent years and its advertising is more enticing than Walt Disney World’s – but the reality could be worse. I often wonder whether the outward images of the wealthy leisured classes enjoying relaxing lifestyles in their designer slacks and sweaters in luxuriant gardens manicured to perfection are not concealing anxieties over the prices, terms and conditions as people’s incomes fall behind the cost of running these establishments in the manner to which they were initially promoted; residents either have to leave or cough up more money, or if that is not possible the operating company embarks on cost-cutting measures to fit the income and the residents are left to fight for the provision of services and amenities set out in their contracts [which are more open to argument than a house purchase contract]. People are buying into a dream – but a dream that the company cannot make come true; it relies on people becoming decrepit and losing the will to challenge the situation.

On your other point – leaseholds on new houses – with the Home Owners Alliance on the case, is there a special need for Which? to make the running? A one-industry pressure group is probably far more capable of representing the owners’ and prospective owners’ special interests than a multi-cause organisation like Which? that has to go on a huge learning exercise every time it picks up such an issue. It is pertinent that the National Trading Standards Estate Agents Team did not consult Which? on its new draft compliance guidance; I think they should have but I am not surprised that they didn’t.

Guest
c.l says:
5 August 2017

there hasnt really been any crackdown; I revealed 02 months ago (story covered in the Telegraph) that Nationwide Pension Fund is a big investor in residential ground rent. Nationwide and other lenders have huge powers such as encouraging commonhold, only lending on freeholds but they never did. England is only country in the world where people repay a mortgage on a property they can never own..

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“On your other point – leaseholds on new houses – with the Home Owners Alliance on the case, is there a special need for Which? to make the running? A one-industry pressure group is probably far more capable of representing the owners’ and prospective owners’ special interests than a multi-cause organisation like Which? that has to go on a huge learning exercise every time it picks up such an issue.” John Ward

I think John you are missing the point that Which? with say 0.75m subscribers can amplify and warn far more effectively than a small organisation like HOA can. In fact I would say Which? has a duty to warn consumers of bad practices . They do not come much worse than this in terms of money, and cynical abuse of the legal knowledge of most buyers, and the arrangement of a panel of tame solicitors who apparently are unable to read or advise on onerous clauses.

And examining the term “make the running ” it appears Which? is a laggard in the field of interested parties . The bottom line is that too much management effort [and £22m] has been devoted to establishing Which? Financial Service [mortgages] and not enough to the charitable aims .

Like many I expect Which? to flag up and campaign of important consumer issues incidentally to carrying out product reviews and providing advice .

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Surely the point is, Patrick, that Which? is dragging so much weight around, and carrying so much baggage, that it can’t react quickly enough to anything except through PR soundbites. I am not trying to justify Which?’s neglect of the leasehold problem – it obviously knew about it because I believe you had flagged it up – but attempting to rationalise it. HOA might be small but it was taken into the consultation by the NTSEAT and Which? wasn’t, and that speaks volumes.

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If you work in a company there has to be a “business case” for everything, even for providing stationery. How does it benefit the business?
So what is the business case for ground rent? What benefit does it offer? What services does the landowner offer? Does he do anything at all?
No, all he does is collect money for nothing and there is no business case at all for us having to pay any ground rent not even a peppercorn ground rent.What for? What is it for? It is money for nothing! The landowner makes us pay ground rent because he can, not because he offers anything. It is a feudal anachronism and should simply be abolished as in Scotland. And I mean all residential leases not just new ones.

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Keveen – with combined developments where several properties under one roof share common parts, services,and other amenities [blocks of flats are the obvious example] leasehold has been an appropriate – and uncontroversial – way of legislating for the overall and communal interests of all the individual owners. It ensures that proper insurance cover is maintained, that services like water, sewage, gas and electricity supplies are properly organised, that any lifts are properly maintained, tested and insured, and that periodic maintenance of the fabric is carried out. This is covered by the service charges but the annual ground rents are a financial return to the freeholder in recognition of the investment made. Such ground rents are often nominal, like £100 a year per unit. NFH has suggested that leasehold should be replaced by commonhold in such developments and I agree with him; each owner would then have a proportionate share of the freehold and have a direct interest in the management of the building rather than be at the mercy of a remote freeholder who is merely using the building as an investment. Some leasehold developments are responsibly managed on equitable terms but there is always room for (a) profiteering over the service charges and (b) fractious negotiations over lease extensions, so it would be better to remove leaseholds altogether, certainly from new developments onwards. I don’t know how it could be done for existing developments without a substantial buy-out sum being required to compensate the freeholder.

In respect of new build houses, which this article is really about, I can see no justification whatsoever for leasehold status as there is no over-riding common interest to be protected [except occasionally shared driveways and amenity areas, but this can be protected under a standard house purchase contract anyway with appropriate clauses and covenants]. My only qualification to that is, as I mentioned previously, that it was seen as a way of making new houses more affordable as the upfront purchase price for a leasehold was lower than for a freehold since the freehold interest in the land was capitalised and recovered through the ground rents over a long period. With help-to-buy and other schemes this form of incentive is no longer required but its legacy will persist in the form of claims against the builders, their agents, and conveyancers over whether or not the original purchaser was adequately informed of the implications of a leasehold purchase.

Guest
Keveen says:
9 August 2017

Yes I should have said I was only thinking about residential houses.

Guest
Fred Rose says:
5 August 2017

With all of the legislation related to the ‘Sale of Goods’ being to protect the interests of the purchaser, there is one exception, and that is the ‘Buyer Beware’ element of property purchase. This is the ‘loophole’ that is being used in these transactions. In 2017 purchasers don’t expect such underhand methods from bona-fide house builders, and the legal profession may not be placing sufficient emphasis on informing their clients of the potentially ‘extreme’ consequences. One Court Case could establish a new ‘precedence’, or recommend new legislation, both of which are long overdue in my opinion.

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I agree with you, Fred. I am hoping the government will close this loophole quickly, and I also hope that an affected home-owner will be sue the seller’s agents for a lack of duty of care [and possible misrepresentation] or their own conveyancer for a lack of due diligence on their client’s behalf.

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” I don’t know how it could be done for existing developments without a substantial buy-out sum being required to compensate the freeholder.”

May require some delicacy in introduction however in the meantime a special category of taxation is introduced where the tax rate to the state is 99% of any ground rent on residential property. The value of these income streams will of course be very much reduced making the value also considerably less.

The only person who might buy them being HMG who in turn can sell the freeholds to individual leaseholders.

Obviously the Grosvenor Estate for instance will suffer but then 200 years of benefiting from the expansion of London has been pretty good going.

I think flagging up this policy now might be advantageous even before legislation being passed in the next Budget.

** I have thought this up on the fly but do like its immediacy … there are I suspect many many articles on leasehold reform of varying degrees of boldness which I am sure someone here will collate.

This looks like a good site to mine:
http://www.leaseholdknowledge.com/ex-solicitor-ian-macfarlane-jailed-200000-ground-rent-scams

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That’s a good approach – although I think the initial tax rate could be lower. Having said that, I think the Conservative Party has already lost the private landlord vote so it might be thinking they should screw them into the ground [the multiple property owners have got off relatively lightly so far].

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The final article regarding Ian Macfarlane is an interesting example of the Banks being rigorous on account opening.

I think many of here we feel that any account I Revenue, Ian Revenue sounds more than a little worrying. You wonder which Bank and what proofs of identity were offered. before they decided to open the account.

Believe me I would have been all over this as highly suspicious and the question would have been to refuse to open it, or open it and send a warning to the Inland Revenue, and the Bank Fraud squad .. if they still existed.

I suspect the opening cheque would have been interesting.

Guest
Jill Speed says:
6 August 2017

I bought my new Morris Homes, Winsford and there was no mention of purchasing the leasehold. I made enquiries’s and was told I had’t to wait 2 years. After 2 years the leasehold has been owned by Adriatic and now we pays Homeground. It has gone from 6,000 to 15,000. At the time I could afford 6,000 but can’t afford 15,000. Never would of bought a new home had I known more about how leasehold works.

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II assume you bought in 2014/ and wanted to buy the freehold recently? I have had a quick look at their site “Jargonbuster” and see nothing regarding Ground Rent or Freehold or Leasehold … cute.

They do have this though which to me a legalish beagle spells trouble but not to most people.

“Do I need permission to alter or modify my home?
If you’re thinking of modifying or extending your home you need to put this request in writing to our central planning and design team.
If you’re thinking of modifying or extending your home you need to put this request in writing to our central planning and design team at our Head Office here. They will then advise what steps can be taken next.”

I am assuming you must be in a house and that their is a Ground Rent clause – I trust your solicitor provided you with a copy of the deeds and from that you will find a clause on Ground Rent which might be interesting reading – or possibly not an onerous amount.

Who acted for you in the purchase?

Guest
alan says:
6 August 2017

there is now a face book page set up for those effected to share their experiences.
National Leasehold Campaign with now stands at 6,500 members

Guest
Kerry Knowles says:
9 August 2017

We purchased a new build house in 2015 from a private builder.

The terms of the 250 year lease where;
(a) ground rent of £300 per annum (utterly extortionate compared with other properties in our area in the North West)
(b) payment for service and maintenance of the common areas (unknown figure and can be charged as and when and on demand)
(c) payment for landlord liability insurance (unknown figure and can be charged as and when and on demand)

In 2016 we received a demand – alongside the demand for ground rent – for £75 for the landlord liability insurance. We asked for information and supporting documentation to show how £75 was fair an reasonable and what we were paying for, what was exactly covered, who it was with etc. We got no reply and therefore have not paid it.

Again, in 2017 we received a demand – alongside the demand for ground rent – for £75 again for the landlord liability insurance. We have since asked 4 times for information and supporting documentation to show how £75 was fair an reasonable and what we were paying for. We still have got no reply and therefore have not paid it.

We keep being told and we keep reading that it is a criminal offence for the landlord not to provide us with this information about the insurance when we ask for it, but it is falling on deaf ears with them and we are upset, annoyed and frustrated at where to go with it. We’ve tried to get advice from The Leasehold Advisory Service but it’s reaching a point now where it is going to cost us to proceed with it legally any further.

They cannot just send people demands for money without being clear about what it is for and how it is deemed as reasonable. It almost just says YOU OWE £75 FOR LANDLORD LIABILITY INSURANCE and that’s it!

So, any proposals to crackdown on this “cash cow” behaviour – including us existing leaseholders – is most welcome by us.

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May I ask why you bought a house on terms you deemed unacceptable?

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Sorry; I must have missed it. Can you point me to where Kerry says they felt the terms were unacceptable when they bought it?

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Ground rent “extortionate”, no value to landlords insurance or the service charge and Kerry is saying now “They cannot just send people demands for money without being clear about what it is for and how it is deemed as reasonable.” but they seem to have accepted those terms when they bought the house.

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I agree Kerry’s making those points now – some two years later – but you cannot know that they bought the house feeling the same way, surely? The terms might not have seemed that bad at the time, information might have been discovered later, or things may have changed since.

Guest
Kris B says:
10 August 2017

Malcolm this is how it happened, people were not ‘stupid’ in accepting terms, they were duped.

The builders were often questioned by people such as myself who didn’t like the idea of buying a leasehold house. We were told in general it was simply to keep the estate looking tidy, and that we could buy the freehold in 2 years and for a fair (stated) price…

…i.e. we wouldn’t be leaseholders for long – similar reasons I imagine that the doublers signed up.

Many of us also questioned solicitors about it, but were typically told it was all ok, again that we could buy the freehold in 2 years, or just drop the house price if it was a problem on sale. My solicitor even added “…My house is a leasehold its not a problem”.

Then the builders sold on the freehold without telling us first, likely as planned all along, and the new freeholders try to charge large arbitrary amounts , much larger than indicated by the builders on purchase, to buy the freehold.

The behaviour I’ve seen and experienced is simply not on. It is impossible to justify leasehold on houses, and thankfully this plus the greed shown by many involved in doubling ground rents has brought huge attention not just to that particular aspect, but also obscene management fees and the many problems with leasehold in general, including when applied to flats.

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Kris B, I was not suggesting anyone was stupid, simply that they appear to have known the terms when they made the purchase.
You don’t need leasehold of course for the estate to be kept tidy; a service charge will deal with that on freehold ans leasehold estates.
I would be worried if my solicitor suggested we might have to drop the price in future to get a sale.
Houses should only be freehold, and solicitors who withhold or misrepresent information should be sued.

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Suing solicitors is one of the hardest processes imaginable. Your line of reasoning which equates to ‘always read the small print’ is one reason why the Unfair Contract Terms legislation exists. Firms will, and always have, try to con people. That’s why we have people like Which?.

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A solicitor’s job is to read the small print and interpret it for you.

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Yes, but you haven’t addressed the first point. Suing solicitors is one of the hardest processes imaginable.

Guest
Vicky says:
9 August 2017

We have recently found out we are having our 3rd child in a 3 bed room house
We can not sell as lease hold puts people off buying and we can not extend as they want around £3000 to agree or £12000 to buy lease
We are trapped .

Guest
Clare Butchart says:
9 August 2017

We are stuck in a leasehold flat when purchased the Solicitor did not explain the implications of a leasehold flat. The lease is now coming towards just over 50 years to purely extend the lease not buy the freehold. The rate is £25,000 a similar property in the area has been quoted £1000 to extend. Why the massive discrepancy? How can the company get away with such day light robbery? Both new builds and existing leasehold agreements including flats should be looked into and the government legislate to abolish these company’s getting money literally for nothing.

Guest
W Dane says:
9 August 2017

It’s not just leaseholds, freehold does not really mean freehold any more with many freeholders being made to pay fees for permission to do anything to their homes. Management companies are being used to maintain the estates, and the residents are having to pay for their (limited) services, yet get no reduction in council tax. The whole thing is a a total rip-off, and the conveyancers have been very much to blame in all this for not pointing out to purchasers what it all means. So many people have a finger in this pie it is utterly shameful.

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Some estate have common areas – planting, grass, gravelled, play areas and a park and car parking with lighting that are not covered by a local authority and therefore need to be maintained for the benefit of all the residents. My daughter’s estate has an annual “service charge” , declared each year, with a residents committee to oversea that the maintenance company operates satisfactorily. They have the power to sack the company and employ another one.

Guest
Simon says:
9 August 2017

Just pulled out of a Persimmon new build sale. Couldn’t get the developer to guarantee the freehold would still be theirs to sell to me after the enforced two year wait before purchase application. Absolutely gutted, but not falling for it. Shambles.

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Hopefully, if more people do what you have done, it might knock a few heads together. This is a hateful practice and simply a way of s******g more money out of house buyers by the back door, especially when the lease goes up in price and lease payments spiral as well.

Guest
Oi Mei Li says:
9 August 2017

Lots of people are comparing leasehold to the feudal system but surely this is much worst? Landowners in medieval times did not deceive the peasants into giving them £xxx,xxx upfront (which we are then mortgaged to) as well as rent. Surely what developers are doing is fraud – “wrongful or criminal deception intended to result in financial or personal gain” or “deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.” They are deceiving us into taking out mortgages to ‘buy our h