Leading property litigation specialist speaks out about the Government’s leasehold proposals

Graham Balchin, a Litigation Partner at City law firm Carter Lemon Camerons LLP, has commented on the Government’s proposals to ban leasehold arrangements and onerous ground rents on new build properties.

After months of media coverage concerning the unfair treatment of some home buyers through the unscrupulous activities of a limited number of developers and freeholders, the Government has announced proposals that would ban the sale of new homes on a leasehold basis.

However, while Graham welcomes this move he has raised concerns about those already in leasehold arrangements.

He said: “The level of present publicity about this issue now means that developers are no longer able to sell leasehold property with such steeply rising ground rent clauses.”

“The Government announcement is therefore likely to be following change rather than driving change, which is already happening, nevertheless it should be welcomed.”

He said focus should now shift to helping existing owners who were affected by the boom in leasehold arrangements and doubling ground rents between 2007 and 2017.

“There is a lot we don’t know about these proposed changes and probably will not know until sometime after the consultation is complete. As I understand the announcement, there are no changes or reforms planned for existing owners of leasehold property,” said Graham.

“That will probably result in an increasing divide between leasehold properties sold between 2007 and 2016, which buyers may choose to avoid, and future buyers of new build properties that will (hopefully) be free of these exorbitant charges.”

He said that he felt the next big challenge would lie with the specialist ground rent investors who buy freehold titles in order to insert very onerous ground rent clauses when lessees buy lease extensions, or other variations of their leases.

He said that some freeholders, such as Martin Paine have announced that they will be adopting a more ethical approach to charges, but he adds it is not yet clear whether this means that these freeholders will no longer continue to insert onerous ground rent clauses into property leases at every opportunity.

These clauses double the ground rent every ten years without limit, which can result in ground rent payable for a modest flat reaching over £1,000,000 per year.

The clauses may also link ground rent to “rentable value” which when coupled with a ten yearly doubling clause may result in the ground rent rising to over £10,000,000 per year.

“Many of these ground rent clauses are camouflaged in order to catch out the unwary. Other freeholders such as companies like Long Term Reversions Ltd and Pier Management Ltd in the Regis Group Plc are also using ten year doubling ground rents to generate huge future ground rents and at the same time are making flats subject to these astronomical rents potentially worthless,” added Graham.

“These practices have been carried on by a small number of predatory freeholders for decades and also need to be stamped out. In the meantime unscrupulous freeholders continue to cause untold misery and financial ruin to the unfortunate leaseholders who get caught out when their solicitors are caught napping.”

Looking to the future Graham anticipates that the majority of new developments will be freehold, he said: “I would expect all houses to be sold freehold. However there may be some sites that the developer only has leasehold title to and in those circumstances it may be impossible to sell freehold houses. If that is the case it may mean that some sites cannot be developed as houses.”

Reflecting more generally on the impact the changes will have on the property development market, he added: “These proposals may reduce developer’s profits and that may impact on the financial viability of some developments, however most of the mainstream developers have already stopped the practice of selling leasehold houses or properties with ground rents that double every ten years, so it will probably make little difference overall.

“Indeed Taylor Wimpey is now spending money removing onerous ground rent clauses from leases that it previously sold. It is therefore very unlikely that Taylor Wimpey would now be able to sell property that is subject to such onerous ground rent clauses.”

In the meantime, Graham recommends that those buying leasehold properties consult their conveyancing solicitor to ensure that they aren’t caught out and advises that those who have already purchased leasehold properties get their arrangements checked out to prevent future abuse.

“Where a person feels they may have been improperly advised by their solicitor or conveyancer they should take action immediately and seek additional advice, as they may have a claim for professional negligence,” concluded Graham.

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