You're sitting in the pristine marketing suite of the new-build housing development, beaming with pride at having saved enough money to purchase your initial home. But there is something the slick salesforce aren't telling you. You may be able to purchase one of their properties, but you won't truly own it.
This is the realisation dawning upon thousands of homeowners that bought a property on the 'leasehold' basis, who are now trapped in properties they can't sell or even make changes to without having to pay for that honour.
One owner we've spoken to was charged lb252 by their freeholder to have a pet, another lb60 to inquire about when they could change their doorbell, and another actually threatened with repossession after building a conservatory on her own home. Countless others have belatedly learned that their ground rent, currently a few hundred pounds annually, will double every decade, meaning bills for a lot of money in the not-too-distant future.
It's obvious why some make reference to this technique as 'fleecehold', or 'the PPI from the housing industry'.
Here, we investigate a tale of antiquated clauses, spiralling fees, greed from faceless investment firms and shoddy legal advice – all of which have contributed to the growing scandal rocking the property industry.
This land isn't your land: how leasehold works
When you buy a home, you'll be either doing this on the 'leasehold' or 'freehold' basis – though some properties can be purchased with a 'share of the freehold'.
If you purchase a leasehold property, you'll own the house itself but not the land it stands on. This usually means you'll pay a ground rent towards the owner of the land, in addition to a service charge for maintaining any common areas.
Ground rent is an ancient – and controversial – phenomenon. In some instances leaseholders only need to pay a 'peppercorn' rent of perhaps a few pounds a year to keep the lease. In other situations, however, annual ground rents can go to hundreds or even thousands of pounds.
This has been a talking point for years and years, with the 1977 Survey of London referencing the rising popularity and value of leasehold estates – and thus ground rents – in Mayfair as early as 1721. With this thought, it's not hard to understand why some declare that ground rent doesn't have devote the current property market.
The government estimates that there are a lot more than 4 million leasehold homes in England alone, and traditionally these have almost exclusively been flats. In recent times, however, developers happen to be selling houses as leasehold, too.
When does lb295 become lb10,000? The situation from the spiralling ground rent
Ground rent may not appear to be a major concern, but in recent years developers have taken benefit of the lack of rules surrounding just how much a freeholder may charge and how often they can boost the bill to turn leasehold homes into goldmines – all in the expense of naive, unsuspecting or badly advised buyers.
Bank adviser Andrea Millward, 36, bought her first home – a new-build Taylor Wimpey property in Merseyside – in 2011. She was encouraged through the developer to make use of its recommended conveyancer, a firm called Bannister Preston, whom she was told could be taking care of the legal particulars for the entire development.
The house was sold as leasehold, and was therefore susceptible to ground rent. Instructions sent at that time from Bannister Preston confirmed the property would be subject to a ground rent of lb295 a year, an amount they stated could be reviewed every Twenty five years.
While lb295 a year may appear a little around the steep side, it certainly wasn't enough to discourage Andrea from purchasing the house.
Yet in March 2022, six years and 3 months after she purchased her home, Andrea was approached with a neighbour who had noticed her very own ground rent bill was set to double in January 2022.
On checking her lease, Andrea discovered that ground rent reviews were in line with the term of the lease commencing on 1 January 2008, instead of 2011, when she'd purchased her property.
While it can be fairly common – albeit surprising – for rent terms to start when a development starts being built (or even when a deal is signed off for that build) instead of whenever a rentals are bought, it doesn't explain why a 25-yearly ground rent review would occur red carpet years.
It transpired that Andrea's 'rent review' actually takes place every 10 years, rather than the 25 years stated through the conveyancer. And with the 10 years technically starting in January 2008, the increase was imminent.
Why did Andrea miss this significant piece of information? Just take a look at the way it was described in her own lease: 'On each Review Date the rent will be increased to double the Rent reserved before the relevant Review Date and also the reviewed Rent is going to be payable from and such as the relevant Review Date'.
On approaching Bannister Preston for clarity, Andrea was informed that the original information (25 years) was simply a 'typographical error'.
Perhaps so, but that error starts to look expensive in case your annual bill is set to double every decade, instead of every quarter-century. While the increase means the bill for the following 10 years will be a hefty lb590 per annum, measuring only the end from the iceberg. The table below shows how Andrea's annual ground rent costs will escalate underneath the 10-year doubling clause.
|Date of ground rent review||Annual ground rent|
Whoever owns the home in 50 years' time is going to be charged nearly lb9,500 annually in ground rent alone, effectively making it unsellable. In the end, who'd want to buy a house with this particular in the lease? Indeed, Andrea told Which? that the clause has already led two auctions to refuse to market her home.
This certainly isn't a remote case. Another homeowner, civil servant Chris Martin, 43, tells a nearly identical tale.
He was also incorrectly informed by Bannister Preston about how often his ground rent would double on the property he bought off-plan in '09, and faced an identical issue – with his original annual bill of lb250 set to achieve lb8,000 in Half a century.
Chris told Which? that whenever complaining to Taylor Wimpey relating to this issue, he felt he had been treated with 'nothing but disdain' through the developer.
Bannister Preston says it's unable to discuss the particular cases but has confirmed that it was its standard practice to set of the terms of leases, including ground rent doubling clauses, before its clients purchased leasehold properties.
The firm pointed to Taylor Wimpey's Ground Rent Review Assistance Scheme, so it claims remedies the problem (more on this later), and advised when leaseholders have any questions on this method they ought to seek independent legal advice.
Taylor Wimpey told us that all of their customers received independent professional legal advice from regulated legal firms when purchasing their properties and signing their leases. It added it would expect all solicitors to describe all aspects of the transaction to their clients, including the ownership structure of the property and any rent reviews. The developer told us it can't comment on the advice that any firm of solicitors presented to its client as this is a 'confidential matter between them'.
Time for change?
In 2022, the presence of these clauses started attracting media coverage. In reaction, Taylor Wimpey go about offering some redress; for example it gave Andrea Millward the opportunity to change her doubling clause to instead increase in line with the Retail Prices Index (RPI) – a common measure of inflation.
This, however, was with the stipulation that they would waive future rights to create claims from the developer, although she was still being liberated to take action against any 3rd party.
However, Taylor Wimpey has now told Which? that entering into a formal settlement when converting a lease is reasonable – but this waiver of future rights would only affect the ground rent doubling clause, and never every other issue.
Andrea didn’t accept the sale from Taylor Wimpey as she planned to avoid ground rent altogether by purchasing the freehold in the developer. But here, she encountered a much more pernicious area of the leasehold scandal.
No real to buy
In theory, homeowners can purchase their freehold after residing in a property for two years – but in reality it's rarely that simple. Freehold purchase can be both confusing and dear, because the buyer must pay for valuations and the legal costs of each side. Many leaseholders also face long-term battles with – or, perhaps worse, silence from – their freeholder.
What's more, owners of new-build leaseholds who attempt to buy their freehold after the requisite 2 yrs often find their developer has quietly sold it onto a good investment company without telling them. While this is permitted by law, it will make life very hard for leaseholders.
At a measure removed, it's not hard to see the attraction. Freehold sales provide helpful lump sums to housebuilders, and ground rent doubling clauses cause investors' eyes to illuminate in the prospect of guaranteed increasing returns.
Many of the letters we've received from leaseholders consume a similar pattern. First, when purchasing the house, the buyer asks if they can buy the freehold there and then. The sales people (or, in some instances, solicitors) let them know they'll be in a position to buy the freehold legally after two years – often for an informally estimated sum of just a couple thousand pounds. In many cases, buyers claim to happen to be actively discouraged from trying to purchase their freeholds up front.
Fast-forward 2 yrs, and the buyer receives a letter from the company claiming to become their new freeholder (or perhaps a managing agent on its behalf), specifying details of ground rents, service charges and permission fees. From this point, they have a new 'landlord', and their dealings using the property developer are gone.
Andrea Millward claims she was told she would have the to buy her freehold after owning the home for between two and Ten years for 10 times the annual ground rent (a total of lb2,950) – an argument a number of leaseholders have echoed.
After discovering her ground rent doubling clause, she looked into purchasing the freehold and located Land Registry records showing it had been sold to some third party for approximately lb7,000.
On enquiring concerning the cost of buying the freehold, a freehold valuation specialist estimated that purchasing it at this time would cost lb30,000-lb40,000.
Andrea isn't alone: one homeowner told Which? they were initially quoted lb5,000 to buy their freehold, a figure that tripled once it'd been sold on without notice. Another talks about an estimate rising from lb2,400 to lb13,000.
Chris Martin suffered this fate, telling Which?: 'Since I got myself my house, my freehold continues to be in love with 3 times to various investment companies – and also at no reason have I been offered the chance to purchase it or been consulted prior to it being sold on.'
It's not unusual for freeholds to be removed on several times to various investors, who then use management companies to gather debts using their leaseholders. This will make the system much more opaque and necessitates a lot of research in the leaseholder to find out who their freeholder actually is.
This – just like many of the issues surrounding leasehold homes – might seem unpalatable, however it isn't illegal. Taylor Wimpey told us that it has always sold freeholds because ‘the administrative structures required to manage a portfolio of freehold interests are very dissimilar to a housebuilder's core business’.
But with so many people discovering that their freehold continues to be bought by a faceless investment company without one even knowing, it's not hard to see how some leaseholders feel duped – and powerless.
A tenant in your home
In accessory for ground rent and service charges, many leaseholders must also pay fees towards the freeholder if they want to make any changes, whether big or small, to their properties.
One homeowner told Which? that such clauses mean leaseholders feel like they have to 'pay for permission to color [their] own front door', while some told us they believed like tenants in their own homes.
Whether the idea of permission fees is appropriate or wrong, you will find undoubtedly inquiries to be raised about how exactly they vary both in cost and breadth, and why no regulation is within place over the maximum amounts that freeholders may charge.
In recent months, many leaseholders have contacted Which? by what they consider to be unreasonable permission fees, citing the double whammy of coughing up a set amount (often lb108) to even make a request, accompanied by another – often larger – fee to actually obtain permission.
Of course, while these fees can be a hindrance, oftentimes homeowners are very well aware of them. But what happens if you buy your new-build home used and have no clue that you will be responsible for such costs?
That's what went down to one Which? reader, who asked to remain anonymous. Our reader informs us she built an extension to her leasehold home in 2012, after applying for planning permission in the local authority and having her proposal signed off by buildings regulations.
Five years later, she received a letter from a managing agent focusing on behalf of her freeholder. The agent claimed she had breached the relation to her lease and that 'our client [has] the entitlement to terminate the lease and, subject to due process of law, take back having your property'.
Bewildered and scared, the homeowner asked if she could retrospectively pay the flat request fee of lb50. The managing agent refused and asserted, had the request been made at that time, a permission fee close to lb500 could have been charged – but to apply retrospectively the fee would be lb1,600, to become paid in nine monthly instalments.
All of the results in a very confusing picture for leaseholders, raising questions about the transparency of freehold sales to third parties, the lack of protection against unreasonable permission fees, and of course serious concerns about how exactly some conveyancers failed to properly advise leaseholders concerning the terms of their contracts.
But with the furore surrounding leasehold for existing owners within the last year, what's it been like to actually try and buy a leasehold property?
A modern-day saga
Often, when people ask how long it takes to purchase or sell a home, the rather unhelpful response is 'how long is a piece of string?' After all, even the most straightforward transactions nearly always face delays and frustrations, and often collapse entirely.
Now imagine attempting to do that with a leasehold property having a ground rent doubling clause in the middle of the developing scandal.
That's the task that has faced – and it is still facing – 37-year-old sales consultant Lee Camp and the wife Sarah, as well as their buyer, journalist George Martin, 28 (no regards to Chris, another leaseholder we’ve discussed) – who all simply desired to complete the sale and purchase of the Taylor Wimpey flat in Mitcham last year.
In spring 2022, first-time buyer George had his offer accepted around the Camps' flat and began studying the legal formalities. But a spanner was thrown in to the works when George's solicitor alerted him to some punitive ground rent doubling clause in the lease. This discovery prompted Nationwide – which the previous month had become the first lender to stop giving mortgages on homes with ground rent doubling clauses – to cancel George's mortgage offer.
George told us: ‘We were actually glad when our mortgage got cancelled. We'd no intention of becoming stuck inside a property we’d not be in a position to sell.’
Months of frustration
The same year, Taylor Wimpey launched a lb130m Ground Rent Review Assistance Scheme to cover the costs of Deeds of Variation – which amend existing leases to convey that ground rent will rise in line with inflation rather than doubling every decade. In doing so, it became the first developer to openly admit to such as the onerous clauses in its leases.
After George's mortgage offer was revoked, the homeowner Lee Camp put on join the Taylor Wimpey scheme to be able to have the ground rent clause removed and let the transaction to proceed.
Lee discovered that the scheme only offers redress to people who've purchased homes from Taylor Wimpey, meaning George had had a lucky escape.
George says: ‘At this point i was optimistic that things could be swiftly sorted, but then we spent months chasing for updates and becoming very little back. The uncertainty about timescales put into our frustration and was hugely stressful.’
A long summer
In July, Lee lost the home he was buying due to these delays. He says: ‘Our son was one at that time and we desired to proceed to a house with a garden that people could enjoy together. We found a perfect place but in the final hour, the bombshell broke concerning the lease issue and our deal fell through.
'We were saddened to look at the property slip away. Now, annually later, we've been priced out of our area and also have had to look further afield to locate a new house.’
It wasn't until February 2022 that George and Lee received the Deed of Variation notice and Nationwide confirmed it would reinstate George’s mortgage offer. Another two months later, the Deed of Variation was using the block's residents' committee for approval – cue another delay.
Lee says, 'The resident committee's solicitors advised them not to sign off unless all the leases were to be changed over, as it would produce a two-tier system in terms of property values within the block. This insert them in an impossible situation.'
At time of writing, 14 months following the Camps accepted George's offer, the purchase remains entangled inside a web of managing agents, residents' committees, solicitors and housebuilders, as both buyer and seller wait to set a completion date.
How are mortgage brokers reacting?
Nationwide's refusal to offer mortgages on leasehold homes with punitive clauses was vital in ensuring George Martin didn't purchase a home that will eventually become unsellable.
But now, a year on, most other major mortgage brokers continue to be adopting a 'wait and see' attitude.
We contacted the 10 largest mortgage providers in the united kingdom, which collectively hold an overall total market share of just over 80%. Most lenders said they were aware of the problems around leasehold and were committed to supporting borrowers with onerous terms – but few were prepared to join Nationwide in formally aiming a policy.
|Lloyds||Conveyancer will advise if lease terms are unreasonable. If so, valuer will determine impact on case-by-case basis.|
|Nationwide||Won't lend if ground rent is more than 0.1% value of property. Doubling clauses banned.|
|RBS||Conveyancer and valuer must confirm lease terms are reasonable before funds released.|
|Santander||Doubling clauses banned – no lending if ground rent increases at more than RPI.|
|Barclays||No lending on leasehold houses (but they do lend on leasehold flats). Conveyancer will advise if lease terms are unreasonable. If that's the case, valuer determines effect on case-by-case basis.|
|HSBC||Failed to reply to enquiries that?.|
|Coventry||Homes with unreasonable clauses will be reviewed on a case-by-case basis.|
|Virgin Money||Escalating ground rents are OK as long as marketability will not be impacted.|
|Yorkshire||Maximum initial ground rent of lb1,000. Ground rent reviews must be a minimum of 21 years from start of lease and at forget about frequent intervals thereafter. Doubling clauses are OK.|
|TSB||Assesses applications on the case-by-case basis.|
Correct as of June 2022; lenders indexed by order of market share based on the CML (largest first).
How widespread are the problems with leasehold?
It remains seen the number of leaseholders will ultimately be affected by doubling ground rents, punitive permission fees and freehold-purchasing problems.
The National Leasehold Campaign group boasts almost 11,000 members on Facebook, many of whom are disgruntled leaseholders campaigning for change in the sector – and our own data suggests that Taylor Wimpey is certainly not the only real housebuilder to become causing homeowners heartache.
In 192 letters received by Which?, 19 different housebuilders and housing associations are mentioned by leaseholders – and the complaints cover seven of the 10 biggest housebuilders in the UK (based on data from the 2022 Housing industry Intelligence Report).
While Taylor Wimpey was mentioned inside a third from the letters we received, Barratt, Bellway, Persimmon and Redrow also featured multiple times. However, these issues counseled me round the sale of freeholds to third parties, not ground rent doubling clauses.
Aside from housebuilders, homeowners have highlighted issues with 15 different investment and property management companies – and lots of have expressed concerns about the advice they caused by their conveyancers.
Do people even know they’re buying a leasehold property?
This question has been consistently raised, with a few of the homeowners who contacted Which? telling us they're taking law suit against their conveyancers.
In the Which? Home Movers survey, conducted in December 2022, 10% from the 370 respondents who said these were leaseholders believed they were not clearly informed that they are buying a leasehold property in the point of purchase. Others can always be in the dark.
Many of the leaseholders in our survey had encountered issues with their properties, with freehold purchase costs (19%), ground rent increases (18%), and agents not carrying out repairs properly (17%) the most typical complaints.
Of the 57 respondents who said they faced significant increases in ground rent, 37% told us they weren't made aware of such clauses once they bought the home.
What are housebuilders doing about this?
It's been a year since Taylor Wimpey set aside its lb130m pot – and in that time the developer originates under much more criticism, with a few Which? readers claiming its assistance scheme is merely a PR stunt.
Taylor Wimpey told Which? it listened to customer concerns and it has taken action to put things right. It states it's under no legal obligation to get this done but wanted to help its customers. It also said it was ‘in advanced discussions with freeholders who own the remaining small number of doubling leases’.
In April 2022, Countryside Properties offered deeds of variation to some of their customers affected by ground rent doubling clauses, enabling these to change the ground rent increases to maneuver in line with the RPI.
The silence elsewhere has been deafening, with other major developers being under forthcoming about redress for homeowners facing similar issues.
With more leaseholders becoming conscious of punitive ground rent doubling clauses, it remains to be seen whether the other major developers may have their hands forced soon, either through pressure from leaseholders or formal government intervention.
Creating a much better leasehold system
As a part of a suite of measures made to improve the housing market, the government wants to make several big changes towards the leasehold system in England to stop these problems rearing their heads for future buyers. Unfortunately, it remains to be seen whether any redress is going to be provided to existing homeowners.
In July 2022, the federal government launched an eight-week consultation into banning unfair leasehold practices. Among the proposals were plans to reduce ground rents to zero, or at least a transparent figure that would reflect the particular costs incurred by the freeholder. The consultation also aimed to gain responses around the feasibility of banning new-build houses from for sale as leasehold.
On 21 December, after reviewing responses towards the consultation, the government announced its intention to follow through on efforts, as well as a drive to 'strongly discourage' developers from using Help to Buy on leasehold houses.
While this may not seem significant, between the launch of Assistance to Buy in April 2013 and the end of 2022, 39,384 (24.8%) properties sold under the scheme were leasehold – with 16,246 of those being houses.
As part of its response, the government said hello works using the Law Commission to try and create redress for leaseholders, making the process of buying freeholds 'easier, faster and cheaper'. An intention to provide 'clear support' for all those struggling with onerous ground rent clauses and excessive permission fees seemed to be pledged.
A slow, painful process
There are serious hurdles to overcome if homeowners should be sufficiently compensated.
In January this season, campaigners lost a long-fought legal find it hard to slash the expense of extending leases. The Mundy v Sloane Stanley Estate case centred on the leasehold flat with just 23 years left around the lease, where the freeholder was demanding lb420,000 to agree to extra time.
Campaigners, led by surveyor James Wyatt of Parthenia Valuation, claimed that the lease valuation system was invalid and that a brand new calculation system ought to be used. A legal court of Appeal ruled against them.
In April, the Law Commission released a document outlining the way it plans to evaluate the leasehold market. However, this has been met with scepticism by leasehold reform campaigners.
Louie Burns of Leasehold Solutions says: ‘In reality it will be several years before the Law Commission's report is published, as well as longer until the government is within a situation to propose legislation to tackle the numerous issues with the leasehold system.’
The long route to redress
While progress is painfully slow, things appear to be moving in the best direction. The federal government has finally acknowledged that the leasehold product is chaos; developers are beginning to sweat over once-lucrative freehold sales and mortgage lenders are becoming increasingly resistant to ground rent doubling clauses.
Most importantly, though, homeowners are angry, and getting angrier. Most of them happen to be sold the dream of a perfect new-build property, however these dreams have turned to dust as they realise 'their' new house isn't truly theirs.
Whether due to bad advice from conveyancers or what many perceive to become the greed of housebuilders, unsuspecting owners have become held in unsellable properties. They've seen several hundred pounds' ground rent spiral into bills for thousands. They've taken care of the right to even ask whether they can help with their property, and paid again for that permission itself. They've been prevented from buying the freehold on their own home, a legitimate immediately after two years' ownership, from a company they've never heard about – a business that describes them as 'tenants' in their own individual home.
It might take many years to unpick the regulations around leasehold properties, as well as for some homeowners redress may come too late to truly make a difference, however with reform now around the government's agenda there a minimum of remains some hope of progress.
It's certain to be a long, complicated route to redress – however this is certainly not new for embattled leaseholders who feel they are only 'homeowners' within the loosest possible terms.