Brush-off: Some residents are being forced to pay a fee to redecorate their homes
Families are being asked to spend their life savings on contracts which claim to give them full ownership of their homes — but, in fact, contain traps that could make the properties harder to sell.
Major developers, including Barratt and Redrow, and investment firms ask leasehold residents to pay thousands of pounds and stick to scores of onerous rules to buy the freeholds on their properties.
In some cases, residents who sign the deals fear they will have to seek permission from the developer or the former freeholder and pay a fee if they want to redecorate their homes or install a shed or conservatory.
They have been told by solicitors that they could face charges of up to £100 to remortgage.
Other freehold contracts appear to bar owners from parking a caravan on their drive or removing shrubs from their gardens. Some stipulate that the windows must be cleaned regularly.
It is not clear how stringently these rules might be applied by developers and property investors.
But legal experts warn that the contracts create a huge grey area of potential restrictions that could put off future buyers.
The hidden catches are the latest in a line of rip-offs affecting leasehold homeowners. Three years ago, Money Mail revealed that builders were increasingly selling houses as leasehold — often under government schemes to help first-time buyers — as a money-spinning ploy.
Historically, only flats were leasehold. But figures show about 1.4 million houses have now been sold on these terms.
With leasehold, the buyer owns the bricks and mortar of a property, but they rent the land it is built on for a set period — usually between 125 and 999 years.
They must pay an annual fee, known as the ground rent. This was traditionally a nominal sum of £10 a year but can now range from £150 to £350.
With many newer homes, the ground rents double every decade, while some go up with retail price index (RPI) inflation.
Meanwhile, the land, known as the freehold, is typically owned by the building firm and often sold on to an investment firm once the buyer moves in.
The investment company then collects the ground rents from property owners, giving it a steady income stream.
This month the Government banned sales of new leasehold houses. Communities Secretary Sajid Javid has described selling houses as leaseholds as a ‘feudal practice’ which is ‘unnecessary’, involves ‘unjustifiable charges and onerous ground rent terms’ and adds further costs to over-stretched house buyers.
Existing leaseholders fear they could be trapped in their homes if buyers avoid leaseholds in future.Some feel their only hope is to buy the freehold to stop paying ground rent. For a new-build, this usually involves handing over between £5,000 and £12,000.
In theory, this should make the property more sellable. But developers offer freehold contracts with restrictions that solicitors warn could make houses even more unattractive.
Money Mail has also seen paperwork in which Barratt offers to sell the freehold of a house for £5,000, but ‘the buyer must stick to all rules of the lease, bar ground rent and remortgage fees
Lawyers say there may be no way of cancelling these contracts once they are signed.
And if homeowners break the terms, experts believe developers could sue them.
The restrictions can be avoided by purchasing the freehold through a formal legal route, instead of accepting the developer’s contract. But this involves instructing a solicitor to go through the First Tier Property Tribunal, which can be time-consuming and costly.
Nicola Baker hoped her three-bedroom leasehold home on a new estate in Huyton, Liverpool, would provide security for her ten-year-old son Dylan, who has severe learning difficulties.
The 31 year old bought the £130,000 house in 2016 through the Government’s Help To Buy scheme with her husband David.
They pay ground rent that increases with inflation, and initially thought the freehold was unavailable to buy. Later, they discovered Keepmoat had sold it to another company, Ground Rent Estates 3.
The Bakers and their neighbours became concerned and asked to buy the freeholds. Keepmoat, acting as a facilitator, offered to sell them at £3,750 each.
But solicitors who have seen the contracts say the residents may have to ask the former freeholder for permission to make ‘internal non-structural alteration’. It’s feared this means they would be charged for fitting a new kitchen or bathroom — or even redecorating.
Solicitors say the contracts appear to prevent homeowners from removing any shrubs planted in the garden. They also appear to bar residents from running a business from their homes.
Nicola says: ‘It is horrible. We had hoped that Dylan would be able to have the house when we passed away but he is mentally disabled and there is no way he can stick to these rules. These are our homes, so why on earth should we have to ask permission to fit a kitchen?’
Communities Secretary Sajid Javid has described selling houses as leaseholds as a ‘feudal practice’
A Keepmoat Homes spokesman says it has been liaising with the residents of Jubilee Gardens over the past few months regarding the facilitation of the legal transaction between homeowners and the freehold owner.
He says: ‘It has come to our attention that residents have been concerned by various restrictive covenants in the legal transfer.
‘In an attempt to resolve this issue, we have asked the freeholder to revisit the documentation.’
A spokesman for Ground Rent Estates 3 says that it does ‘not intend to take any interest following any freehold transfer to leaseholders’, and that leaseholders should contact it about any concerns.
Joy and Lee Dickinson are desperate to buy the freehold of their home on a new-build estate near Preston, Lancashire, because their developer Redrow has warned that it plans to sell it on.
The couple bought the four-bedroom detached property for £400,000 in 2015 because it was close to Joy’s job as a health and safety adviser. Now they fear they will never be able to sell.
Last year Redrow offered to sell the freehold for £9,100. But the documents say the couple will have to pay £100 for any change to their mortgage. The contract appears to bar them from altering their property and they must also commit to cleaning the windows every four years.
It’s left the couple fearing that, if these rules remain in place, they could struggle to attract buyers.
Joy says: ‘We have had so many sleepless night over this. I fear we have jeopardised our entire financial future.’
Money Mail has also seen paperwork in which developer Barratt offers to sell the freehold of a house to the leaseholder for £5,000, but ‘for the avoidance of doubt’ the buyer must stick to all rules of the lease, bar paying ground rent and remortgage fees.
These terms include seeking permission to put up a conservatory, or an extension. The leaseholder must pay a fee for seeking permission, and there is no refund if the request is turned down.
She must also pay maintenance fees every year and agree not to park a caravan on her driveway.
Mari Knowles, partner at Leasehold Law, says: ‘Freehold buyers need to be very cautious about the terms they are offered.
‘While one might expect that purchasing the freehold would remove all onerous clauses, all too often these clauses are retained in the small print.
‘We’ve seen many instances where the homeowner still needs to get permission for anything from building a conservatory to changing the carpets, and even installing blinds on the windows.
‘Although the Government has said that it will make the process of purchasing a freehold easier, faster and cheaper, at present it is very difficult to get out of a contract once it has been signed.
‘The worst-case scenario is that homeowners might end up with a property that is unsellable due to the persistence of onerous clauses and permissions.’
Katie Kendrick, founder of the National Leasehold Campaign, says: ‘This seems to be a new scandal. People are panicking and buying the freeholds through these deals. In reality they might be worse off than before.’
A spokesman for the Ministry of Housing, Communities and Local Government says: ‘To help leaseholders we will work with the Law Commission to make it cheaper and easier for them to buy their freehold or extend their lease and we will provide comprehensive information on the various routes to redress for those consumers with onerous terms.’
A Barratt Developments spokesman says: ‘Covenants generally cover issues we have historically received complaints about from residents. They are designed to benefit all those living on the development, regardless of tenure.’
A Redrow spokesman says: ‘Virtually all freehold transfers on new homes come with covenants attached, for example, to ensure the management of public open space.
These are in place to protect all homeowners on a development and to safeguard the value of everyone’s home. Customers all receive independent legal advice during the homebuying process.’
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