New-build leasehold homeowners in England are trapped in a cycle of rising fees, punitive clauses, and unsellable homes, according to a Which? investigation.
After receiving almost 200 letters from leasehold property owners regarding 19 different housebuilders and housing associations, Which? launched an investigation into the deepening leasehold crisis.
Leasehold properties require homeowners to pay ground rent on their property, usually at a fixed price for an agreed duration before it can be increased.
However, the consumer champion’s investigation highlighted that at least one property developer had included punitive “doubling clauses” in sales contracts that effectively increase ground rent at an alarming rate, trapping people in homes they cannot sell.
The developer’s recommended conveyancers had failed to properly explain these clauses to some buyers.
One Taylor Wimpey homeowner told Which? that six years after purchasing her home she discovered her ground rent fee would double every decade instead of every 25 years, as she had previously been informed by her conveyancer.
Between 2008 and 2058, her ground rent would skyrocket from £295 to £9,440 a year, rendering the property effectively unsellable, with estate agents refusing to market it.
The conveyancing firm involved in the purchase – recommended by the developer – later blamed the catastrophic discrepancy on a “typographical error”.
Which? received reports from other homeowners who believe they were misinformed by a conveyancer recommended by Taylor Wimpey and left with rapidly rising fees.
Taylor Wimpey launched a redress scheme in 2017 to amend leases so ground rent rises in line with RPI, being the first property developer to openly admit to using these onerous clauses.
This is too little too late for some homeowners who have had to put their lives on hold while being trapped in unsellable properties.
In an attempt to avoid paying ground rent, some homeowners had asked to purchase their freehold upfront.
Some leaseholders told Which? they had been discouraged by sales staff or solicitors at the time of buying the property, being advised to wait a couple of years – only to find later that the freehold had been sold to a third-party company with an interest in extracting ever-increasing fees, without the homeowner’s prior knowledge.
Taylor Wimpey aren’t the only developers selling on the freehold – Which? also received complaints from homeowners whose freeholds had been sold on by Barratt, Bellway, Persimmon and Redrow.
While this is permissible and common practice amongst property developers, the lack of transparency has left homeowners feeling powerless and “duped” as property developers and third-party companies pocket a profit.
One homeowner was quoted £13,000 to buy their freehold after it had been sold without notice, despite being told previously it would cost around £5,000.
The investigation also found examples of homeowners being slapped with unreasonable “permission fees” from third-party freeholders to make improvements to their own homes.
Which? received complaints from homeowners who’d been forced to pay as much as £2,500 to build a conservatory, £252 to own a pet, £60 to put up a doorbell, £300 to erect a fence and £108 just to make a request to alter their property.
One Which? reader who was unaware of such clauses in her lease said she was threatened with repossession of her property after she built an extension in 2012 and the threat was only lifted after she agreed to retrospectively pay a £1,600 fee.
Previously reserved for flats, a trend for selling new-build houses on a leasehold basis has emerged in recent years. It is estimated that there are now some four million leasehold properties in England alone.
Sometimes people were not even made aware that the house was leasehold at the point of purchasing. In a separate Which? Home Movers survey, one in 10 respondents claimed they were not properly informed they were buying a leasehold property when they bought it and many more may still be in the dark.
Last year, the Government promised to crackdown on unfair leasehold practices by banning the sale of almost all leasehold new build houses and making it cheaper for existing leaseholders to buy their freehold.
Gareth Shaw, Which? Money Expert, said:
“We found families facing onerous clauses from developers, being badly advised by lawyers and hit with spiralling ground rents that effectively rendered their homes unsellable.
“In some cases they were ordered to pay extortionate retrospective permission fees under threat of losing their home.
“We look forward to seeing firm action from the Government to protect homeowners and ensure that no-one loses out as result of these unfair practices in the future.”
Notes to Editors
- The Which? Home Movers survey was conducted in December 2017, and included 370 people who said they were leaseholders in the last two years.
- According to the Department of Communities and Local Government there are four million homes leasehold homes in England.
- Taylor Wimpey said all of its customers received independent professional legal advice from regulated legal firms when purchasing their properties and signing their leases.
- Taylor Wimpey launched a £130m Ground Rent Review Assistance Scheme to cover the costs of Deeds of Variation – which amend existing leases to state that ground rent will rise in line with inflation rather than doubling every decade.
- It told Which? “We listened to the concerns and difficulties that some of our customers were facing as a result of their doubling ground rent lease terms and have taken action to put it right. We were under no legal obligation to do this but we want to help our customers.”
- Taylor Wimpey confirmed that it has always sold its underlying freehold interests because the administrative structures needed to manage a portfolio of freehold interests are very different to a housebuilder’s core business.
- To read about the full investigation please visit which.co.uk/leaseholdscandal
- Case study available upon request