Despite Persimmon and Aviva agreeing to change the way they operate in regard to leaseholds and ground rent charges this week, homeowners could still be entitled to compensation.
Following an investigation by the Competition and Markets Authority (CMA), housebuilder Persimmon Homes will allow its leaseholders to buy the freehold of their property at a discounted rate, capped at £2,000, and insurance company Aviva, which buys leaseholds from housebuilders, will repay homeowners who saw their ground rents double.
After the commitments announced by Persimmon and Aviva, the CMA is expecting other housing developers and investors to take similar action.
Unfair ground rent charges and compensation claims
Due to unfair ground rent charges, many people in the UK have been left in a position where they are stuck with homes they cannot sell or been faced with unexpectedly high prices to buy their freehold.
While Persimmon is allowing its leaseholders to buy the freehold of their property at a discounted rate and Aviva is removing ground rent terms the CMA considers unfair and repaying homeowners who have seen rents double, homeowners could still have incurred a loss because someone didn’t advise them properly in the first place.
At Nelsons, we’re ready to help people who have found themselves unwillingly involved in a leasehold misselling 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 clear advice about the existence and implications of the onerous ground rent clause, we can assist you in claiming compensation for damages due to negligence, which could then help towards the cost of buying the freehold.
What are ground rents?
In the majority of circumstances, 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 housebuilders to buyers are usually for long periods, such as 250 years or 999 years.
In recent years, housebuilders have been selling new build properties to buyers on a leasehold basis, meaning the housebuilder retained ownership of the freehold. In many cases, housebuilders 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 re-mortgage 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, housebuilders 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, ten 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 ten 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 ten 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 past ten 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.
Is the Government doing anything about the problem?
The Leasehold Reform (Ground Rent) Bill seeks to tackle the inconsistencies and uncertainty of ground rent for future leaseholders so that if you buy a leasehold in England and Wales, you only have to pay the freeholder a nominal rent. This Bill, if it becomes law, will also introduce new rights for Trading Standards to levy penalties on freeholders of up to £5,000 for breaches of the legislation.
There are a few exemptions to the new rules outlined in the Bill, although these are unlikely to affect the majority of new home buyers taking on a leasehold property in the future. These exemptions include:
- Business leases where people need to live in the same premises as their work to continue to do this and agree with their freeholder the most beneficial and appropriate terms; and,
- Some parts of the community-led housing sector, so that freeholders can retain the right to levy ground rent to maintain their ability to further promote community activities; and,
- Certain financial products, which depend on leasehold agreements where rent replaces interest-bearing mortgage repayments.
How can Nelsons help
If you are concerned about the ground rent provisions in your leasehold, please call Daniel or another member of our team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online enquiry form.