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Up and down the country, buyers of new-build, leasehold homes are finding themselves faced with huge increases in ground rent and are discovering that the cost of owning the freehold may be wholly out of reach.
Many of these homeowners now believe that they were ‘mis-sold’ their properties.
The old adage an “Englishman’s home is his castle” may be under threat by the practices of new build property developers selling properties on a leasehold basis and purchasers not being fully advised of the implications of this.
There are two aspects of this that could come back to bite purchasers further down the line: increases in rent being paid to the freeholder; and being quoted extortionate prices to purchase the freehold.
When you buy your new home, you expect to own the bricks, mortar, roof and the land that the house is built upon. Unfortunately, some developers are only selling these properties on a leasehold (or what they have called a “virtual freehold”) basis, which means that you lease the property for the period stated – anywhere between 40 and 999 years, but usually around 125 years.
In some cases, the new owner was not advised about the rate at which their annual ground rent would increase. We have seen cases where what started out at £250 per year doubled every 10 years. This may not seem much now, but in 20 years time when it is £1,000 per year and you can’t sell the property because of this annual expense, things seem quite different. As well as the ground rent charges, the freeholder can also control things like the utilities suppliers, making it difficult for the owner to switch electricity supplier, and buildings’ insurance.
There are also cases where the purchaser has been told they could buy the freehold for the property for £2,000 - £5,000. The owner has then saved up to do this and 18 months later has contacted the developer to tell them they now want to buy the freehold. However, the developer has sold the freehold to someone else, and when the owner contacts them they are told the cost has risen to £34,000.
Many purchasers may have been mis-sold leasehold property and may not have been told the full implications of what is involved.
An example of this quick increase in ground rent is set out below:
Some of the responsibility may lie with the developer for not having fully advised you. The developer may have told you it was “virtual freehold” and “not to worry” about the freehold or that “you can buy it later”. Sometimes these statements are misleading. The developer then argues that they had no control over what their sales team was saying and that the salesperson no longer works for them. They also often try and argue that your solicitor should have told you everything about the property. This is not always correct!
In many instances, you may have been advised, or even offered a reduction on the purchase price, to use a certain solicitor recommended by the developer. A solicitor has a duty of independence and to advise you on all aspects of your purchase, the good the bad and the ugly, so you know exactly what you are buying. If they didn’t, the solicitor might have been negligent.
The solicitor who acted for you in purchasing the property may also be at fault for not highlighting things like the increase in ground rent and the possibility and consequences of the developer selling the freehold to someone else. Sometimes these clauses are buried deep in the lease in legal jargon. Were these properly explained to you? If they had been properly explained to you, would you have still bought the property? If the answer to these questions are “no”, then you may have a claim in negligence against the solicitor.
Leaseholders are becoming increasingly concerned in relation to the saleability and mortgageability of their leasehold homes. Mortgage companies often require a minimum of 80 years left on the lease before they will consider granting a loan to a prospective purchaser. Anything less, and the mortgage company will be unlikely to grant a loan. This is because, as the number of years reduces, so too does the value of the property, and a mortgage lender may be concerned about the property being worth less than the value of the loan they make.
Essentially, as the number of years remaining on the lease reduces, the value of the property will also diminish. So, if you have bought your “forever house” on a 125 year lease, when you come to sell it 45 years’ time, you may struggle to find a buyer whose mortgage company agrees to loan on such a “short lease”.
In addition, mortgage companies will consider not only the affordability of your proposed monthly mortgage payments, but any other payments you need to make in connection with the property – including ground rent and service charges. If the ground rent reaches astronomical heights due to the way in which it increases, a mortgage company may consider payments unaffordable and refuse to lend.
The government has held an open consultation for tackling practices in the Leasehold Market with the aim of seeing if there is anything the government can do to improve consumer choice and fairness in the leasehold sector.
This consultation looked at a range of measures to tackle unfair and unreasonable abuses of leasehold; in particular the sale of new leasehold houses and onerous ground rents. The government’s response to the consultation is awaited, and it is anticipated that there may then be an overhaul of the use and sale of leasehold properties. However, it is not yet known the extent of the overhaul and whether it will be applied retrospectively.
The government’s own comments on the leasehold “crisis” was published in February 2017 in ‘Fixing our broken housing market’.
The Civil Justice Council, an advisory body chaired by Master of the Rolls, Sir Terence Etherton, published a formal response to the consultation in September 2017, which has indicated their belief that leaseholds for houses should still exist, but urges the government to find ways to make the system fairer. A full copy of the Council’s submission can be found here: https://www.judiciary.gov.uk/wp-content/uploads/2011/03/cjc-response-on-tackling-unfair-practices-in-the-leasehold-market.pdf
For an expert initial assessment of your potential claim, call us now on 0808 149 3441(calls are free from landlines and mobiles). Or just complete the 'Start your claim in 10 minutes' option at the bottom of the page and we'll call you straight back.
I found your service very helpful and the staff very friendly. I would recommend you to everyone I know who needs help. Thank you so much."
Mrs L. Allen, Cambridgeshire
Issues concerning leasehold properties are top of the agenda for an all-party parliamentary group on leasehold property. It is great that real steps are now being taken to overhaul this area. However, that does not help you in your immediate circumstances.
We are acting for homeowners like you who feel that the developer misled them about being able to buy the freehold and/or whose solicitor did not advise them of the onerous clauses in the lease.
If you think you are affected, please contact us on 0808 149 3441 for a free, no obligation discussion. Or just complete the ‘Start your claim in 10 minutes’ option on the right of this page and we’ll call you straight back.
If we think you have a claim, we will look at your case on a “no win no fee” basis, meaning you pay nothing if your case is not successful.
"This is not about a claims culture. We just want to defend the rights of the people who are suffering because of this."
Head of Financial, Property and Professional claims
We will take your claim forward on a No Win, No Fee basis by entering into a Conditional Fee Agreement (CFA) with you.
This means that in the event we win your case, we will recover our fees and expenses from the other party or parties.
In exchange for us taking the risk that we may not be paid if the claim is not successful, we are entitled under the terms of our CFA to claim a success fee from you to be paid from any damages recovered.
You may already have an insurance policy in place that provides legal cover for you in the event that any claim is unsuccessful, for example with your home or car insurance. If not, we will put in place an After The Event (ATE) insurance policy to provide this cover. The premium for such a policy is normally only payable if the case is successful and is deducted from any damages recovered.
Our team will be able to take you through the key features of the CFA as a funding agreement and will address any questions you may have.
Mrs E. Swaffield
Freehold means you own the building and the land it stands on until you sell it.
A leasehold means you have a lease from the person that owns the freehold. You own the right to occupy the property during a specific period; however you do not own the property itself. This is a form of contract which sets out the rights and responsibilities of you and the landlord.
You are entitled to claim for losses you have suffered as a direct consequence of the incorrect advice you may have been given. You must demonstrate that the losses you are claiming are directly attributable to the actions of the defendant you are claiming against – e.g. that you would have bought the freehold earlier had you known it might be sold to someone else and cost you many times more than you initially thought it would.
It can be very difficult to estimate how long a claim will take from start to finish as each claim is unique. We will keep you informed every step of the way, but we do advise it may take over 2 years from when notification of the claim is first made to it reaching trial. Of course, since your home will be the most important purchase you make, it is worthwhile for peace of mind.
No. We are currently retaining clients on a ‘No Win, No Fee’ basis, meaning you will only have to pay us if the case is successful. (for a further explanation, please see our page entitled Conditional Fee Agreement).
Yes, we are. But we also specialise in professional negligence and property claims. We have a dedicated team that deals solely with these types of cases.
Contact us by telephone on 0808 149 3441 to speak to one of the team about the next steps in the process.
Yes. Call us on 0808 149 3441 for a free, no obligation discussion about your case.
Once you have signed with us as a client, we will contact you to explain what next steps we will take and what next steps you will need to take to assist us with investigating your claim. However at this stage we recommend that you retain all the paper and electronic records that you hold in relation to your purchase of the property and any sales material you were given by the developer (where possible).
Please also note that any advice, information, or documents produced by our legal team directly to you concerning the progress of the claim and/or its merits must not be reproduced or reported on social media or forums/bulletin boards. Such information will be confidential and privileged and must not be reproduced or placed in the public domain. It may harm your claim if it is seen by the other side.
Whilst you may be happy in your home at the moment, the problems associated with a leasehold property may be more relevant if/when you come to sell your property. It may not be worth what you thought, it may even have decreased in value because of the rising ground rent and/or reduced term left on the lease. Potential purchasers may also struggle to get a mortgage to help them buy the property for the same reasons.
You may already have a policy of insurance that covers your legal expenses in place which may cover you for a claim of this type (sometimes referred to as “Before the Event”/”BTE” insurance). If not, we will put in place an After the Event (ATE) insurance policy to provide cover for this possibility. The premium for this policy will only be payable if your case is successful. If you are successful, the premium will be payable out of any damages you are awarded and will not be recoverable directly from the other side.
You must start court proceedings within 12 years of signing the lease for any claim against the developer. For any claim against your solicitor, the claim must be started within 6 years of when you acted their advice. Failure to commence your claim within these periods may mean that you are likely to lose your right to claim damages and you will run the risk of not receiving any compensation.
Very few claims reach the stage of trial as most settle before the court hearing. We will endeavour to settle your claim as quickly as possible before trial, but always balancing this against the quality of the deal available. However, as a matter of best practice, if court proceedings do become necessary in your case, you should proceed on the assumption that the case will go to trial. We will be with you every step of the way and will explain what will happen at court if your case goes to trial.
Many leasehold properties were advertised as being a 'virtual freehold' as the lease was for 999 years. Some people were told a 'virtual freehold' is as good as a freehold because of the length of the lease and were re-assured by this. Legally there is no such thing as a “virtual freehold”. It is no different to a leasehold, and will have exactly the same obligations on the owner in terms of ground rent, service charges and obtaining consent from the landlord.
Escalating ground rent means that the money you pay to the owner of your freehold increases over time, this is usually every decade. This is a term most often used to describe ground rents that increase drastically, for example, those that double every ten years.
If you are facing escalating ground rents that have affected the value of your home and that were not explained to you by the developer or your solicitor, you may be able to pursue a leasehold claim.
Leasehold enfranchisement is simply a term used to describe buying the freehold of your property. The Leasehold Reform Act 1967 gives you ‘the right to enfranchisement’, meaning that if certain conditions are met, the leaseholder has the right to compulsorily purchase the freehold even if the freeholder does not wish to.
The service charge is a fee associated with the maintenance and upkeep of communal or public areas of your estate, such as green areas, roads, and car parks. This fee exists because the public areas of your estate have not been handed over to your local council for care and upkeep, and you are paying for a private company to carry out any required work instead. Therefore, it is possible to own the freehold of your home and still be required to pay a service charge for maintenance.
Service charges are separate from your lease, and while your lease will contain an obligation for you to pay the service charges, it will not govern the extent of those service charges. Any complaint regarding the amount of your service charge should be addressed with the estate management company.
A covenant is a legal restriction as to how you can use or enjoy your property. The aim is often said to be to ensure that the value of the property and neighbouring properties are not affected by, for example, one person allowing their front garden to become overgrown. And so the freeholder, or whoever has the benefit of the restrictions, may seek to enforce the covenants to maintain the value of their property. In extreme cases, this could lead to forfeiture of your lease, which means the freeholder can forcibly take possession of your property for non-compliance with the terms of the lease.
Many restrictive covenants require you to obtain the permission or consent of the freeholder before you can do something, and often the Landlord charges an assessment or consent fee for considering any requests, thus adding further expense. Leaseholders have, in some cases, found extreme restrictions placed upon them, such as not being able to keep a caravan at the property (even on your own drive), a limit on the number of vehicles per house and restrictions on the building of conservatories or porches. Building additions will often require permission, not just for the ability to build, but also approval for the overall design and size even if the local Council has already agreed your building plans.
To find out if we assist with your difficult leasehold situation, please contact us for a free initial telephone call.
Historically, a freeholder would be the council or a specific landowner, but freeholds are now being sold on as investment opportunities to “property management companies”, or “freehold management companies”, whose main priority is often a return on their investment. These “investors” benefit from the high ground rents, consent fees relating to restrictive covenants, and the increase in value of the land generally. When a leaseholder tries to buy their freehold, the investor only agrees to sell based on a sum that takes into account the escalating ground rents that they will miss out on by selling the freehold.
House prices can be seriously affected by the actions of these freehold management companies, and there can sometimes be as much as 15% difference between two identical properties save for one being freehold and the other leasehold.
If you have a case that you chose to pursue with us, the claim will likely be against the solicitor that acted for you on the purchase of the property. This is because the solicitor should have made sure you were aware of the additional obligations a leasehold property has and should not have allowed you to enter into an agreement that is detrimental to you.