黑洞社区

Amid national newspaper reports of a leasehold homes 鈥渟candal鈥�, housebuilder Taylor Wimpey last month announced a fund to help affected customers, using measured language to propose a solution that addressed 鈥渦nderstandable concerns鈥� 鈥渋n an appropriate and fair manner.鈥� The City of London seemed to agree it had drawn an equitable line under the problem: the 拢130m write-down, equivalent to 3% of the value of the company, was accepted with barely a flicker of its share price.

However, for home purchasers unlucky enough to own a Taylor Wimpey leasehold house affected by the 鈥渟candal鈥�, the announcement hasn鈥檛 drawn a line under their problems. In fact for those such as Linda Barnes, owner of a Taylor Wimpey-built house she purchased second hand in 2014, before concerns about leasehold houses surfaced, the offer means nothing 鈥� the company will only help those who bought direct from it.

The problem with Barnes鈥� home, as with many other leasehold houses sold by Taylor Wimpey between 2007 and 2011, is that the contract means that the ground rent charge 鈥� which for her and many other Taylor Wimpey house leaseholders is 拢295 a year 鈥� will double next year, and then again every decade until reaching 拢9,440 a year around the time she retires. It鈥檚 the equivalent of rising 7% each and every year 鈥� and she has no idea how she will afford it.

Mortgage lenders have started to withdraw support for houses with such leases, and Barnes has heard that some solicitors are now advising people not to buy them. Meanwhile, Barnes understands from others in the same situation that the new owner of the freehold, E&J Estates, is asking as much as 拢40,000-拢55,000 from those seeking to solve the problem by buying the freehold back. 鈥淚t鈥檚 just awful,鈥� she says. 鈥淚 thought I had our future mapped out. This is life-changing.

鈥淚 couldn鈥檛 sleep, I couldn鈥檛 eat when I found out. It鈥檚 the first thing I think about when I wake up in the morning, when I wake up at night. The stress is immeasurable.鈥�

This testimony is typical of those caught on the wrong end of Taylor Wimpey鈥檚 鈥渄oubling鈥� leases 鈥� as they have become known. But the firm is far from the only housebuilder to have sold houses as leaseholds in recent years. Other volume housebuilders, such as Bellway and Persimmon, have done the same 鈥� even if Bellway told 黑洞社区 this week it has not made use of doubling ground rent charges and there is no evidence Persimmon has either. Here 黑洞社区 uncovers evidence of at least one other major housebuilder, Countryside, making use of 鈥渄oubling鈥� leases. So, with political parties now pledging to clamp down on leasehold house sales, and legal action commencing from distraught home purchasers, what have housebuilders actually been doing, and can they really assume they鈥檝e put the 鈥渓easehold scandal鈥� behind them?

鈥楽肠补苍诲补濒鈥�

While there is nothing illegal in selling a house as a leasehold, many separate accounts from purchasers (see case study overleaf) have described a process which has left buyers feeling conned. For example, we were told by one purchaser who bought a Taylor Wimpey home that while they were made aware they were buying leasehold, Taylor Wimpey鈥檚 sales agents told them they would have the opportunity to buy the freehold for a few thousand pounds at a later date. We are also informed of a purchaser of a Countryside home whose solicitor failed to warn them fully of the implications of lease clauses. Instead of being offered the freehold at a later date, many developers have sold the freehold on to professional ground rent investment companies without prior notification.

鈥淚 haven鈥檛 wanted to talk about it with anyone,鈥� says James Sharp, purchaser of a 拢250,000 house from Countryside at Stephenson Grove in Rainhill with a doubling lease. 鈥淚 was getting sleepless nights and I鈥檝e gone into my shell. This was supposed to be our daughter鈥檚 inheritance, But I had this horrible feeling I鈥檇 been fleeced and I was just so embarrassed.鈥�

It鈥檚 the first thing I think about when I wake up in the morning, when I wake up at night. The stress is immeasurable

Linda Barnes, owner of Taylor Wimpey house

There is no evidence of any collusion or conspiracy that add up to illegal practice. For example, housebuilders commonly vet solicitors to form 鈥渞ecommended鈥� panels, and this doesn鈥檛 necessarily mean there is a commercial relationship that generates a conflict of interest, let alone a conspiracy to mislead.

In addition, while freeholders of flats are obliged to offer leaseholders the opportunity to purchase leases before selling them on, this legislation does not apply to houses, and there are also a number of other exceptions to these rules which mean they can in practice be legally bypassed on freeholds for flats.

The Home Builders Federation (HBF), Taylor Wimpey and Countryside all point out that, via the conveyancing process, each buyer will have received independent legal advice. But while Taylor Wimpey maintains it has no legal obligation to do anything, it has also accepted that 鈥渢he introduction of these doubling clauses was not consistent with our high standards of customer service.鈥� Chief executive Pete Redfern told 黑洞社区: 鈥淲e鈥檝e listened to the concerns and difficulties that some of our customers have faced [and] we are sorry for the worry this has caused them [鈥�] This is about doing what we think is right.鈥�

Countryside however, while admitting to 黑洞社区 that it had used 鈥渄oubling鈥� leases in the past, said nevertheless it was not planning to take action to help customers who bought these houses. Chief executive Ian Sutcliffe told 黑洞社区 that the firm now ensured that, where possible, all houses were sold on a freehold basis, but added: 鈥淲hat we were doing was absolutely in line with industry practice at the time. We absolutely refute that people didn鈥檛 know what they were getting into. It was clear in the literature, and if they didn鈥檛 feel informed the question has to go back to their solicitor.鈥�

He told 黑洞社区 he did not know how many homes the firm had sold under 鈥渄oubling鈥� leases but that he thought it was a practice on a 鈥渧ery small number of sites.鈥�

Persimmon told 黑洞社区 it was conducting a review of its 鈥渉istorical leasehold sales鈥� but that its preliminary conclusion was that its leasehold terms 鈥渟hould not give its buyers cause for concern鈥�, and that there was never a commercial relationship between Persimmon and any solicitors acting for its customers.

Bellway, meanwhile, has told 黑洞社区 it continues to sell homes on a leasehold basis. In a statement to 黑洞社区, Bellway said: 鈥淭he benefit of us selling a home as leasehold is that by receiving an annual ground rent we are able to sell leasehold homes at a very competitive price and at a lower cost to the purchaser than a freehold sale.鈥�

In relation to ground rents Bellway said: 鈥淎fter a period of eight years from the term commencement date the ground rent will increase in line with the retail prices index (RPI). Following this, it will increase by the rate of RPI every five years thereafter for the duration of the lease term. The reason for this is to ensure that the ground rent remains at the same value, in real terms, as at the time when the lease was granted. Unlike those stated recently in the press, it does not 鈥榙ouble鈥�.鈥�

Aside from the ground rent, the leasehold contracts found in new-build houses often contain onerous conditions that charge occupiers hundreds of pounds for fitting new carpets, bringing in pets or building extensions. Mari Knowles, partner at advisory firm Leasehold Law, says 鈥淓ven when the ground rent is linked to RPI inflation, you could argue that these properties would still be difficult to mortgage because of these burdens.鈥�

Asset class

The story of why housebuilders have sold houses as leaseholds has its roots in the credit crunch. With house prices falling, developers looked for other ways to make sites viable, at the same time as globally low interest rates pushed investors to seek new asset classes that could deliver better investment yields. This combination saw the massive expansion of freehold as an investment.

Land Registry figures compiled by campaign group the Leasehold Knowledge Partnership (LKP), show that the annual value of new leasehold houses sold more than tripled between 2010 and 2015 from just 拢616m to 拢1.97bn. It estimates that around 40,000 leasehold houses have now been built and sold in total and that developers are making between 拢300m-500m a year from the sale of freehold for leasehold properties 鈥� though housebuilders do not have to declare them.

One housebuilding source suggested the avenue was used to make challenging sites viable, and that 鈥渢here are hundreds of homes that wouldn鈥檛 have been built but for this freehold market鈥�. This view is supported by the HBF, which said in a statement that leasehold terms should be reasonable, but that any policy changes should 鈥渘ot reduce the supply of developable land and so threaten increases in the supply of desperately needed housing. The industry is committed to working with government to develop a way forward that is fair for consumers whilst continuing to support huge increases in housing supply.鈥�

However, others suspect selling leaseholds to investors is just about profit. Berkeley Group, for example, said in its 2015 accounts that it sold a portfolio of 10,000 ground rent leases for 拢99.8m on all property types, on which its gross profit was 拢85.1m.

Sebastian O鈥橩elly, trustee at the Leasehold Knowledge Partnership, says: 鈥淭here is no service provided in return for this ground rent. There is simply no reason to do this other than to attempt to create an asset class on the back of the property market. In doing so they鈥檝e eroded the wealth of a generation of homeowners.鈥�

Pressure

Since Taylor Wimpey鈥檚 鈥渄oubling鈥� leases were revealed in the autumn, housebuilders have been under growing public and political pressure. Following debates in parliament, Tory MP Peter Bottomley laid down an early day motion in parliament calling on Taylor Wimpey, Bellway, Persimmon and ground rent investor Adriatic Land to give their customers 鈥渇air, affordable enjoyment of their home鈥� by 鈥渃ancelling unaffordable ground rent terms.鈥� A Facebook group entitled the 鈥淣ational Leasehold Campaign鈥� set up to get redress for affected homeowners now has almost 4,000 members.

Housing minister Gavin Barwell has pledged action on the doubling leases issue, while communities secretary Sajid Javid told MPs last month he was minded to ban the selling of new houses under leasehold, and look at the issue of onerous terms more widely.

There is simply no reason to do this other than to attempt to create an asset class on the back of the property market

Sebastian O鈥橩elly, Leasehold Knowledge Partnership

The Labour Party鈥檚 manifesto also included a pledge to 鈥渆nd the routine use of leasehold houses in new developments.鈥�

Last month the Council of Mortgage Lenders issued a statement acknowledging that 鈥渟ome lenders鈥� were reviewing lending policies given concern about 鈥渙nerous ground rent clauses.鈥� Then, just two weeks ago, Nationwide became the first individual mortgage lender to say it would not lend on new-build homes with 鈥渦nreasonable鈥� ground rent clauses that doubled every 鈥渇ive, 10 or 15 years鈥�, or were more than 0.1% of the value of the house.

It is not, however, clear where this pressure leaves either affected homeowners or housebuilders themselves. Taylor Wimpey customers have said its 拢130m Ground Rent Review Assistance Scheme, which promises to pay freehold owners to amend ground rent terms so that they rise in line with inflation, is opaque and compensates the ground rent investors, not them. It would also leave Taylor Wimpey customers with ground rent charges remaining far higher than the 0.1% of house value that Nationwide has now stipulated. LKP鈥檚 O鈥橩elly says that Taylor Wimpey should instead 鈥渙ffer these buyers the freeholds at the price originally quoted to them by sales executives.鈥�

In addition, buyers of re-sold houses such as Linda Barnes remain completely without help from Taylor Wimpey, while the change of heart by mortgage lenders potentially leaves those who have already bought in an even more difficult position.

Advisers such as Louie Burns, managing director of Leasehold Solutions, are now advising affected leaseholders to club together to attempt to get redress via two routes: negotiating a reasonable price to buy back their freehold; and building a negligence claim against solicitors that failed to advise them of the dangers lurking in their leasehold contracts. Burns says the first professional negligence case, involving 175 properties, has just been launched, with 鈥渕any more about to start.鈥� However, he is also investigating further legal options 鈥� including a potential mass litigation against the housebuilders on the basis of the sales advice given to buyers: 鈥渋f we could get thousands and thousands of people to sign statements.鈥�

Housebuilders so far seem relatively unruffled, despite one MP, Justin Madders, describing this as potentially the 鈥淧PI of the housebuilding industry鈥� 鈥� a reference to the misselling of insurance by banks which has now cost that sector a total of 拢37bn.

Chris Millington, analyst at Numis, says: 鈥淔rom what we know, Taylor Wimpey is the firm most exposed to this. Yes, there could be further financial liability to the sector, but not anything near the amount we鈥檝e already seen.鈥� However, Cenkos analyst Kevin Cammack argues the jury is still out on the long-term impact: 鈥淭he unanswerable question is how far the bandwagon against this practice gets driven, and then what becomes defined as an onerous lease. The liability depends on where that consensus is reached.鈥�

At the very least, following separate revelations about the build quality of Bovis Homes properties earlier in the year, housebuilder critics say the 鈥渟candal鈥� calls in to question whether the sector鈥檚 biggest firms behave ethically, even when they behave lawfully.