The Leasehold – Ground Rent Scandal: Have you been affected?
In the latest of a long history of financial mis-selling, conveyancing firms have seen an increase in claims being brought by unsuspecting, poorly-advised new home-owners for unknowingly signing up to leasehold mortgages with limiting terms that tie them into disproportionately increasing ground rent clauses which in some cases have prevented new homeowners selling their property, and, in the end costing them thousands of pounds.
In this article, one of our team, Dianne Lai takes a look at the scandal and how it is affecting the UK population.
On 21st December 2017, Communities Secretary Saijd Javid of the Ministry of Housing, Communities and Local Government announced a “crackdown on unfair leasehold practices”, announcing “new measures to cut out unfair and abusive practices within the leasehold system, including a ban on leaseholds for almost all new build houses”.
I’ve got a Leasehold mortgage – so what?
There are generally two forms of legal property ownership:
If you own the freehold to a property, you own the building and the land it stands on outright. Your name on the land registry as ‘freeholder’ means you own the ‘title absolute’. If you own the leasehold to a property, it means that you lease the ownership of the property, like you would do from a Landlord, but from a Freeholder.
A lease can range from 40 years to 999 years depending. At the end of your lease, the ownership of the property reverts back to the Freeholder. The common scenario within which a Leasehold mortgage is used is when someone buys a flat within a building. The freeholder will normally own the entire building and be responsible for maintaining the communal parts of a building, such as the stairwell, exterior walls, roof, elevators, and any other communal areas.
If you are a leaseholder, there may be certain restrictions as to what you can and cannot do with the property. For example, in order to keep the aesthetic outer appearance of architecturally novel flats or buildings that can be seen across a city’s skyline, Freeholders can generally include clauses that limit what colour blinds or curtains a Leaseholder may be able to hang up and / or what awnings or decorations they can put out on their balconies. There may be other restrictions such as limits as to what pets a Leaseholder can house so as to not disrupt neighbouring flat dwellers. Leaseholders will be restricted by their agreement with the Freeholder of the land and generally will have to pay a maintenance fee, annual service charges and their share of the buildings insurance. If a Leaseholder does not comply with any of the Freeholder terms, the Lease can be forfeit and the Freeholder can retain possession of the property.
Additionally, Leaseholders likely have to pay a ground rent to the Freeholder annually.
As you can see from the above, a Leasehold mortgage may be appropriate when an individual is purchasing a flat that involves agreeing terms with the Freeholder of land where multiple properties (flats) exist, however what the property industry has seen over the last decade is an increase of the ‘Leasehold mortgage’ product being sold to new homeowners who are purchasing new build, free-standing, detached houses where there is no real reason why a ‘Freehold mortgage’ product would not have been appropriate for the new mortgagee. This is arguably a mis-seling.
Ground Rent and other Onerous Conditions
The question is therefore, ‘Why would somebody sell me a Leasehold mortgage product and not a Freehold mortgage product?’
Unfortunately, the answer to this question is money. By selling new build homes under a ‘Leasehold mortgage’ product, developers and housebuilders keep the title absolute (as the freeholder) and often include onerous conditions, similar to if you had purchased a flat, within the ‘Leasehold’ mortgage contract. Often these onerous conditions are not properly explained by the Conveyancer (who is usually recommended by the Developer and Estate Agents selling the property). An example of one such onerous condition is annual ground rent charges that by some mortgage contracts double in price annually, disproportionately and unfairly.
Moreover, there have been some instances where developers who retain the freehold to properties have sold said Freehold to new investor companies who then put even more onerous demands on unsuspecting new home Leasehold buyers.
The Daily Mail recently reported one newlywed couple who were “trapped” in a house they could not sell due to a legal catch that meant their ‘ground rent’ doubled every decade, meaning that by their 70s, their annual payment for their property would rise to £4,800.00. Moreover, they were not aware of this condition until they attempted to sell their property and move into a bigger home. Their attempt to sell their home actually failed because of the onerous Ground Rent conditions that discouraged other would-be buyers costing them thousands in legal fees.
I think this applies to me: What can I do next?
Sir Peter Bottomley, an MP and co-chair of the All-Party Parliamentary Group on leasehold reform asked “What kind of society are we where people who are new to property law should find that the asking price has more than doubled in a year for a home that they live in?”
Large Housing Development Companies, such as Taylor Wimpey, have already set aside an estimated £130 million to compensate buyers trapped in new-build homes with spiralling ground rent contracts, owing to increasing pressure from campaign and government groups. The current consensus is that this exploitation and abuse of the Leaseholder system is similar to the Payment Protection Insurance (PPI) Scandal that affected so many and the banking industry only a few years ago.
If you believe you have been affected, you should seek professional, expert legal advice in order to see if you are owed any compensation for not being properly advised as to the most appropriate product for you.
If you believe any of the above may apply to you, Barrister-Direct can help. Our team has extensive experience in recovering compensation for clients dealing with a range of Financial Mis-selling issues. Contact our Financial Mis-Seling Team at Barrister-Direct and book a free, no obligation telephone consultation to find out more.
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