Property developers have been flogging leasehold properties with extortionate fees and spiralling ground rents attached to home-seekers with the connivance of conveyancing solicitors.
In the latest damning report on new-build leaseholds, an investigation by consumer body Which? has revealed that some developers include punitive ‘doubling clauses’ in sales contracts that hike ground rents at an alarming rate, ultimately trapping people in homes they cannot sell.
It found that many homeowners had been misinformed about the terms of their leases by a lawyer, including glossing over ‘extortionate’ charges attached to owning the leasehold. And according to Which? in many cases these lawyers were recommended to buyers by the property developer.
Last year the government has proposed a total ban on new-build leasehold homes
Which? also found evidence that once the purchase was complete, property developers then sold on freeholds to third-party companies, without informing the homeowners.
In some of the worst cases, freeholders were then slapping homeowners with fees to make elementary amendments to their own homes – £252 to own a pet or £60 to put up a doorbell.
Leasehold homes have been the subject of much controversy over the past year after it emerged that homeowners were being fleeced on inflating ground rent costs.
The issue has become such a scandal that last year the Government proposed a total ban on new build leasehold homes. It is still consulting on how this would work but should report its plans later this year.
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 unsalable.
‘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.’
However, a spokesman for the Home Builders Federation defended leasehold and said: ‘Leasehold is in itself a secure and proven tenure that helps protect millions of home owners.
We found families facing onerous clauses from developers and being badly advised by lawyers
‘It works well for the vast majority of people who own their home with a lease in instances where they are interdependent and where facilities, grounds and services are shared by multiple households.
‘The terms of leases should be proportionate and clearly communicated to buyers whenever they purchase a home. The industry continues to work with Government and other stakeholders to ensure that leasehold terms are fair and transparent, providing confidence to homebuyers and existing leaseholders alike.’
Lawyers found guilty of bad leasehold advice
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 claims she had previously been informed by her conveyancer.
It meant that between 2008 and 2058, her ground rent would skyrocket from £295 to £9,440 a year, rendering the property effectively unsalable.
The conveyancing firm involved in the purchase – recommended by the developer – later blamed the discrepancy on a ‘typographical error’.
A Taylor Wimpey spokesman said: ‘All our customers received independent professional legal advice from regulated legal firms when purchasing their property and signing their leases, the terms of which were outlined simply and clearly.
‘We are unable to comment on the advice that any firm of solicitors has provided to its client as that is a confidential matter between them.’
Taylor Wimpey voluntarily launched a £130million redress scheme in April last year to amend leases so ground rent rises in line with inflation.
The Taylor Wimpey spokesman said: ‘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.
One homeowner discovered her ground rent fee would double every decade instead of every 25 years, as she had previously been told by her conveyancer
‘We were under no legal obligation to do this but we want to help our customers.’
The developer says it has reached agreements with the freeholders who own the leases, to enable the ‘significant majority’ of its customers with a 10-year doubling lease to convert their ground rent terms to an retail price index inflation-based structure.
It also added it is in ‘advanced’ discussions with freeholders who own the remaining number of doubling leases.
WHAT ARE THE CHARGES ASSOCIATED WITH LEASEHOLD?
Fees and charges associated with a leasehold property can be many and varied, and may not be immediately obvious to anyone who is thinking about purchasing or selling a leasehold property.
To help understand the three types of charges commonly associated with leasehold property – ground rent, service charges and administration charges – the Conveyancing Association, the trade body for the conveyancing industry, has put together a guide which outlines what they cover, what they might cost you, and whether they are reasonable or not.
These fees tend to be payable to the lease administrator who will normally be a person or company employed by the landlord – who owns the freehold – to administer and manage the building. The guide can be downloaded from the CA’s website and should shed some light on the leasehold process, the costs that may be incurred, and what to do if you are charged excessive fees.