Fleeced on their lease: Families hit with soaring ground rent

Jo and Mark Darbyshire thought that their five-bedroom property near Bolton would be the perfect place for the kids to grow up in.

At £400,000, it was expensive for them, but it had a huge garden and countryside views and the couple were able to choose their own kitchen and bathroom.

They had no idea that, eight years later, they would face a bill for tens of thousands of pounds to buy their freehold and escape soaring ground rent. 

Trapped: Leaseholders Andrea and Roi Millward with their children Sienna and Isaac

The Darbyshires say that when they bought their home, they were told by Taylor Wimpey that they would be able to buy the freehold at a later date for around £5,000.

They were never warned that their housebuilder might sell the land beneath their home to an investment company which could hike the price ten-fold.

And they are not alone. Money Mail can today reveal that thousands of households are caught in the same trap. 

This is because housebuilders are routinely flogging freeholds to third parties — typically investment companies — which hike the cost.

Often, homeowners only learn that their freehold has been sold and has rocketed in price when they need to buy it in order to be able to sell the home.

If homeowners cannot afford to buy their lease, then they have no protection against soaring ground rent — a sum paid by the owner of a building to the owner of the land on which it is built. 

They may also find that their property value plummets, while the onerous terms of the lease could render their home almost ‘unsellable’, experts warn.

Jo Darbyshire says she was never warned that their housebuilder might sell the land beneath their home to an investment firm

Jo Darbyshire says she was never warned that their housebuilder might sell the land beneath their home to an investment firm

Jo, 48, and Mark, 49, planned to buy their freehold before their ground rent doubled in 2020.

But, less than a year after they moved in, they received a letter saying that the freehold had been sold to an investment company, Adriatic Land.

The couple, who have two children, Adam, 17, and Heather, nine, didn’t think anything of it at the time.

But, in 2016, a neighbour’s house sale fell through over concerns about the terms of the lease.

And when the neighbour contacted the management company to buy the freehold, she was told it would cost in the region of £50,000.

Just to get the quote, she’d had to pay a £108 fee.

Jo, a commercial director, says: ‘After this happened, another person decided to get a quote, thinking that £50,000 may have been a misprint.

‘They came back with £40,000. We all thought: ‘Oh my God, what have we got ourselves into?’ ‘

Jo believes she may have to pay £30,000 to £40,000 for her freehold.

She adds: ‘My ground rent, which is currently £295, is due to double every ten years up to 50 years, to a maximum of £9,440 a year. We feel that we were mis-sold.’

A promise to ban ‘feudal practices’

Last year, Sajid Javid, who was Communities Secretary at the time, pledged to liberate leaseholders from such ‘feudal practices’.

With a freehold property, buyers own the home and the land it is built on. A leasehold only gives you the right to live in a property for the period of the lease — and you must pay ground rent to the landlord.

But ‘onerous’ terms attached to some ground leases let landowners double this rent every decade, costing homeowners thousands. On top of this, households face hefty fees for changes such as installing double glazing or replacing flooring.

Mr Javid said it was ‘unacceptable for homebuyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms’.

Under new rules, ground rents on new leases — for both houses and flats — will be set close to zero.

The Government has also pledged to ban leaseholds for ‘almost all’ new builds. The backlash against leaseholds has already seen most developers abandon the practice.

The Law Commission is consulting on reforms to make the process of purchasing a freehold ‘easier, cheaper and quicker’ and remove a requirement for leaseholders to have owned their property for two years before they can purchase the freehold.

But nothing is proposed to stop the owners of existing leaseholds making large rent increases or charging huge sums for people to buy the freeholds of their homes. It will also not mirror Scotland, where leaseholds are banned.

Campaigners say that the proposals do not go far enough.

Trapped: Kevin and Jeanette Sephton pay £200 a year in ground rent, but this will double to £400 in 2025. They also pay a £100 annual service charge for estate maintenance

Trapped: Kevin and Jeanette Sephton pay £200 a year in ground rent, but this will double to £400 in 2025. They also pay a £100 annual service charge for estate maintenance

After her experience, Jo Darbyshire helped to launch the National Leasehold Campaign, which now has 12,000 members.

She says: ‘There are some wins for leaseholders. But these reforms are unlikely to make my freehold available for the £5,000 I was told it would be when I bought the house.

‘The onward sale of freeholds has caused huge customer detriment . . .this mis-selling scandal needs to be addressed.’

There are 4.2 million leasehold homes in the UK, but Sebastian O’Kelly, a spokesman for the Leasehold Knowledge Partnership — a consumer charity linked to the All-Party Parliamentary Group on leasehold reform — says: ‘We believe 100,000 homes have been left unsaleable by the greed of developers.

‘People are trying to sell their homes, but find they are toxic assets they can’t get rid of — unless they pay an astronomical sum to buy the freehold.

‘The law needs root and branch reform. Developers can get away with murder.’

6 in 10 say: ‘we were mis-sold’

Nine in ten housebuyers regret purchasing a leasehold property, found a report by the National Association of Estate Agents.

And 62 per cent said they felt their home had been mis-sold.

‘Most buyers have no idea about the trappings of a leasehold contract until it’s too late,’ says the report.

This observation couldn’t be truer for Kevin Sephton, 36, and his wife Jeanette, 40, who bought their three-bedroom detached house for £210,000 in 2014.

What you need to know 

  • Only sign up or pay a deposit when you understand the full terms and conditions — have the lease checked by a third party. The Leasehold Knowledge Partnership — leaseholdknowledge.com — can provide advice.
  • Don’t feel forced into using the solicitor recommended by the housebuilder.
  • It may be cheaper to deal directly with the landowner, but can be risky, as they sometimes seek to retain ‘permission clauses’, allowing them to charge a fee for changes made to your house even though they no longer own the land.
  • Make a challenge about the cost of your freehold via the First-Tier Tribunal service. Visit gov.uk/courts-tribunals/first-tier-tribunal-property-chamber or call 0161 237 9491 for more information.

The plan was to sell the property so they could move to another school catchment area, ready for when their two sons, Blake, seven, and Flynn, five, start secondary school. 

But the couple, from Widnes, Cheshire, have had two sales fall through this year because of the lease.

The Sephtons pay £200 a year in ground rent, but this will double to £400 in 2025. They also pay a £100 annual service charge for estate maintenance.

To make their home more attractive to buyers, the couple looked into buying their freehold. When they purchased the house from Countryside Properties, they believed that this would cost £3,000 to £4,000.

However, the Sephtons found the freehold was owned by a third party. And, after contacting that firm, D.A.T.S Holdings, the couple were told they would have to pay £23,000 for the freehold, plus legal fees.

Kevin, an engineer, and his wife, a consumer service worker, say they received insufficient information about their leasehold at the time of purchase.

Kevin says: ‘Countryside told us that we could purchase the freehold at some stage, but we weren’t given details. 

‘Our solicitor, recommended by Countryside, also failed to point out the increase in ground rent. We feel we have been mis-sold.’

Countryside said the site where the Sephtons bought their home was one where it had a building licence, but didn’t own the land.

A spokesman said: ‘Information provided to customers will always make clear whether the property is sold on a leasehold or a freehold basis. 

All customers also receive independent advice from their chosen solicitor, whose role it is to explain the type of ownership and the terms of any leasehold.’

Another Taylor Wimpey homebuyer, Andrea Millward, 37, wants to sell the property she shares with husband Roi, 31, and children Sienna, seven, and Isaac, four, so the family can move abroad.

Yet no estate agent will touch it. Andrea and Roi had bought their home in Prescot, Merseyside, in 2011 for £153,000.

But when it was valued by an independent surveyor, they were told the leasehold had knocked £42,000 off its saleable value.

Andrea says she was originally told she could buy the freehold after two years for ten times the £295 annual ground rent — nearly £3,000. But she has yet to find out how much she must now pay.

Andrea, a bank adviser, says: ‘We were looking at moving to New Zealand, because my husband could find work out there, but now we can’t sell. I’d advise anyone who finds out there is a leasehold on a property to walk away.’

A leasehold only gives you the right to live in a property for the period of the lease — and you must pay ground rent to the landlord

A leasehold only gives you the right to live in a property for the period of the lease — and you must pay ground rent to the landlord

A housebuilder’s attempt to help

Taylor Wimpey is offering to help households by altering ground rent increases.

Instead of doubling every ten years, the payments would rise once a decade by the Retail Price Index (RPI) measure of inflation.

The firm also says if homeowners agree to the change, they will not have to pay as much for their freehold. This is because the freehold price is based on the value of the land and likely rental income.

If the rent increases are uncertain, it reduces the value of the land and so the cost of the freehold.

For example, a freehold priced at £30,000 to £40,000 under the current system could fall to £10,000. Taylor Wimpey has put aside £130 million to cover the costs for homeowners and compensating the firms who own the freeholds.

However, homeowners will still end up paying more for freeholds than originally quoted.

They also fear that RPI — set higher than the more widely- used Consumer Price Index (CPI) measure of inflation — could lead to ground rents increasing by a greater sum than under existing arrangements.

Last month, RPI was 3.5 per cent, while CPI was 2.7 per cent. RPI reached a recent high point of 4.8 per cent in 2010 and 2011 but, back in 1975, it reached 24.9 per cent.

Andrea Millward, who faces a maximum annual ground rent of £9,440 a year after 50 years, if it keeps doubling, says: ‘If RPI hits 7.2 per cent, it becomes as onerous as the system of ground rent doubling. And RPI has been higher in the past.’

And Jo Darbyshire adds: ‘Even if I go onto RPI, buying my freehold will cost £10,000. So I’m still out of pocket.’

Homeowners also fear if they change to RPI, they’ll have to sign a contract stopping them from taking legal action over mis-selling. 

‘A Taylor Wimpey spokeswoman says that leases provided by the company ‘were clear’ and ‘all customers received independent advice from regulated legal firms’.

‘We would expect solicitors to explain all aspects of the transaction, including ownership and any rent reviews,’ she adds.

The firm said the ‘vast majority’ of homes are sold as freeholds, apart from in a few areas such as the North West, where ‘selling houses on a leasehold basis was a long-standing custom’.

It added that it has no legal obligation to notify leaseholders about disposing of freeholds or give them the right of first refusal.

Sleepless nights and a £15,000 bill

Although she has escaped the leasehold trap, it took university lecturer Cath Williams 15 months, cost £15,000 and caused her ‘anxiety, sleepless nights and the onset of eczema’.

Cath, a lecturer in radiography at the University of Liverpool, bought a new build town house from Taylor Wimpey in December 2011.

The divorced mother of two grown-up daughters says that her lease was ‘complex, used legalese and was completely beyond my understanding’. She adds: ‘I am used to reading academic papers, but could not make sense of (it)’.

Cath paid £149,950 for her home in Ellesmere Port, Cheshire, which had £295 annual ground rent, rising with RPI every ten years.

‘I didn’t know it then, but that is considered onerous, as ground rent was more than 0.1 per cent of the property value,’ she says.

And she only discovered her home was leasehold at the point of reservation. Cath says: ‘I challenged it immediately — there was no indication in the sales information about the lease. The saleswoman replied that it was ‘virtual freehold’, over 999 years, and very cheap . . . ‘pennies every month’.’

She says Taylor Wimpey referred her to a solicitor and told her she had only 28 days to complete or she would lose her £500 deposit.

She adds: ‘I asked [the solicitors] if I could buy the freehold and they said it was not possible.’

Cath feels that the solicitors did not explain the law, her rights to buy the freehold, or the leasehold costs.

Two years later, the 61-year-old was told an investor had bought her freehold.

She eventually purchased the freehold for £7,600 in July, but legal fees and costs doubled the actual bill. Cath had to cash in a pension and borrow £5,000 from an elderly aunt. She has since sold up and moved to Liverpool.

The Home Builders Federation, representing housebuilders, says new build homes offered as leaseholds were sold for less than if they had been freeholds.

But a Federation spokesman says: ‘Terms of leases should be proportionate and clearly communicated to buyers when they purchase a home. Buyers employ a conveyancing solicitor who should advise of the terms.’

A spokesman for Homeground, the asset manager for Adriatic Land — which bought many Taylor Wimpey freeholds — said: ‘Homeground welcomes and is assisting with reform in the leasehold sector.

‘Their client, Adriatic Land, like Taylor Wimpey, voluntarily agreed to alter these doubling ten-year leases at nil cost to the leaseholders in September 2017.

It should be noted that it is substantially cheaper to acquire or extend a lease linked to RPI than a ten-yearly doubler.

‘All leaseholders were written to with the option to convert to a standard RPI lease. Since then, more than half have signed up.

‘There is no obligation for leaseholders to convert their leases, but the ground rent terms offered are approved by the majority of mortgage providers.’

A spokesman for Adriatic Land, which bought thousands of Taylor Wimpey leaseholds, disputes the claim that 100,000 householders have toxic leaseholds and said only 20,000 have ground rent doubling.

He says leasehold values rose so dramatically because they are a ‘secure investment’ for pensions.

A spokeswoman for the Ministry of Housing, Communities and Local Government says: ‘We have announced new measures to ban leaseholds for almost all new build houses and changes to ensure ground rents on new long leases are set to a peppercorn.’

moneymail@dailymail.co.uk

 

Read more at DailyMail.co.uk