The Government is facing fresh calls to reform leaseholds and take action on doubling ground rents.
Tory MP Sir Peter Bottomley, co-chairman of the All Party Parliamentary Group on leasehold reform, raised the issue of leasehold reform in Parliament on Monday during an oral questions sessions with Secretary of State for Communities and Local Government Sajid Javid.
Bottomley said: “Balancing supply and demand requires successful developers and confident buyers.
“Will my right hon Friend bring in the owners of the freeholds, who are making a misery of the lives of people in leasehold houses, and the developers who are trying to put things right? People such as Adriatic, frankly, look like modern-day robbers.”
Javid responded that proposals in last year’s Housing White Paper to increase transparency of leaseholds would be brought forward “very shortly”.
It comes as Louie Burns, managing director of Leasehold Solutions, which advises on extended and buying out leases, called on the Government to rescue the “forgotten casualties” of the doubling ground rent scandal by tackling ‘informal’ lease extensions.
He said: “The implications of doubling ground rents from informal deals on leasehold flats are a huge scandal on a much greater scale than leasehold houses.
“However, the scandal of informal deals has received virtually no media nor political attention and many flat owners remain completely unaware of the trap they are falling into.”
Burns estimated that 50% of lease extensions carried out over the past 25 years have been through informal deals.
He said owners of leasehold flats have a legal right to extend their lease by an additional 90 years and to reduce the ground rent to zero, but freeholders often resist this as they don’t want to lose the income.
Instead, he says, they offer flat owners ‘informal’ deals which they claim will save the flat owner time and money.
He said: “These deals will usually only extend the lease back up to 99 or 125 years, rather than adding an additional 90 years under the statutory route.
“Worse still, they often include onerous ground rents which can be £500 per year linked to an aggressive accelerator, for example doubling every 10 years. This is evil genius by freeholders, as in less than 20 years the flat owner will once again need to extend their lease, except that now the onerous ground rent means the flat owner has to pay considerably more for the extension.
“We’ve seen many instances of freeholders making an extra £70,000 over 15 years, all because the flat owner wanted to save a few hundred pounds by avoiding the statutory route.
“In the future, buyers may also find it much more difficult to secure a mortgage on a flat with onerous ground rent terms, as lenders have tightened their lending criteria – which could leave flat owners with a property they are unable to sell.”
Burns also warns that flat owners who accept an informal deal have no protection under the law and have no opportunity to remove unfavourable clauses in their lease terms, including onerous ground rents and service charges.
Comments (2)
Although there are many opportunistic freeholders that need reining in the law itself is far from ideal and expensive to extend leases. There are times when a private deal is better or the only route. One chance of a 90 year extension is inadequate. This area of law does need reviewing perhaps a good start would not be a 90 year extension but 999 year extension. This would give a closer to freehold tenure but still have a necessary management structure; or even push harder for leaseholders to all be shareholders of a the freehold so management of the property can be truly for the benefit of all leaseholders. Having just been to the FTT(property chamber) over rip off insurance charges and suspect service charges the costs would have been prohibitive had I not been able to argue the matter myself without legal advice. The downside was that it took many hours of my time and producing excessive paperwork (6 bundles of around 200 pages per bundle). Thankfully I was confident enough and sufficiently knowledgeable to be able to argue my case against the freeholders’ barrister, but only because of my lifetime in the property profession, training, knowledge and the wonders of the internet for the additional research!!
I act for an old charitable foundation with dozens of freehold blocks let on long leases. Many have rent review provisions that increase rents on a formula linked to the aggregate value of all the flats. Those lease contracts were freely entered into in the market at the time but when reviews take place, usually at long intervals, there is often complaint. The main complaint should be the against solicitors who advised the flat purchasers because they never explain the possible implications of the rent review clauses. The freeholder gets it in the neck (and their agent of course) but the legal profession is repeatedly found wanting in the quality of the advice it provides to flat buyers.