Thousands of families across the UK, who are trapped in unsaleable homes due to onerous ground rent charges, could be entitled to compensation.
In the 2000’s, developers started selling homes on a leasehold rather than freehold basis – often without the buyer fully understanding the contracts they were entering into. In some cases, the freeholds were then sold to offshore investors, who have since demanded large sums from homeowners to buy out these contracts.
What are ground rents?
When a home is sold as a leasehold, the buyer owns only the house itself. The freeholder owns the land, meaning the buyer must pay ground rent annually, which is meant to reflect the value of occupying the land/ground.
The purchaser occupies the property on the terms set out in a legal agreement called a lease. The leases granted by the house builders to buyers are usually for long periods, such as 250 years or 999 years.
In recent years, house builders have been selling new build properties to buyers on a leasehold basis, meaning the house builder retained ownership of the freehold. In many cases, house builders then went onto sell the freeholds to third parties, such as investment companies.
Other payments provided for in long leases can include fees charged by the freeholder to the property, such as building an extension or for agreeing to a re-mortgage of the property. Ownership returns to the freeholder when the lease comes to an end.
I’m a leasehold owner and pay ground rent – do I have a problem?
Historically, ground rents have been low – no more than around £50 per year. However, in the last few years, house builders have started to increase ground rents to an initial charge of between £250 to £500 a year.
They have also added clauses in the lease that allow them to review the ground rent periodically, for example, every five, 10 or 25 years. Typically, the review clause allows the freeholder to increase the ground rent at each review.
In theory, a ground rent that doubles every 10 years doesn’t sound too bad. However, most leases are set for a long term such as 999 years. If a ground rent of £250 per year doubles every 10 years, you can expect to pay £16,000 per year after 60 years. For many people, that’s simply unmanageable.
If you are a leasehold owner who purchased a new build property in the last 10 years, you should check your lease to see what it says about ground rent and what you can expect to pay.
Should I sell my home?
Because of national publicity, many buyers are now aware of the problem and unfortunately, will not buy a property with an onerous ground rent clause. The existence of such clauses has also led to banks and building societies refusing to lend on those properties.
This means that in the unlikely event that a buyer is still prepared to buy a property affected by a ground rent clause, they are highly unlikely to be able to obtain a mortgage to complete the purchase. This clearly has a huge effect on the value of these properties, and, in some cases, they may well be worthless.
Even to a cash buyer, a property affected by the onerous ground rent terms will be unattractive, as the burden of the clause will be inherited via the purchase.
What can I do?
If you have the finances, you could try and purchase your freehold from the freeholder, but in many cases, the price of the freehold is vastly inflated – amounting to tens of thousands of pounds.
It might also be possible to agree amendments to the terms of the lease and the ground rent clause, but this is also likely to come at a significant cost.
Finally, you may have a claim against the solicitors that you instructed to help with the purchase of the property. If the solicitor failed to give you clear advice about the existence and implications of an onerous ground rent clause so that you could understand the risk and the impact, you may be able to successfully argue that your solicitors have been negligent.
Is the Government doing anything about the problem?
The Competition and Markets Authority (CMA) has also formally launched an investigation into the housing market over the mis-selling of leasehold properties, which will investigate permission fees, ground rents and other terms associated with leasehold properties.
The competition watchdog will be consulting with developers, lenders and freeholders requesting information in relation to how leasehold agreements are drawn up, agreed and subsequently maintained by the parties. The report will also consider the effects that ‘unfair’ terms have on leaseholders and have asked for people to share how they have affected their lives.
Developers and freeholders could face legal action if the watchdog finds evidence of leasehold mis-selling.
At Nelsons, we’re ready to help people who have found themselves unwillingly involved in the leasehold mis-selling scandal to bring a professional negligence claim against the conveyancing solicitor they instructed to help with the purchase of the property. If the solicitor failed to give you advice about the existence and implications of the onerous ground rent clause, we can assist you in suing for damages, which could be put towards purchasing your freehold from the freeholder.
If you are concerned about the ground rent provisions in your leasehold, please call Daniel or another member of our team in Derby, Leicester and Nottingham on 0800 024 1976 or contact us via our online form.