New Build: Leasehold "Scam"

moneyistooshorttomention

Mr.Generous wrote: »

except NEVER is too extreme. I've bought two leaseholds which I doubt would put anyone off. The first has what's called a peppercorn rent. Ever heard the phrase?

The ground rent was 2 peppercorns per year. They didn't bother collecting it and haven't done for many years I believe.

The second is over 100 years old on a 999 year lease, the ground rent is 50p per year. I just sent £5 and asked for a reminder in a decade.

Both leasehold that some buyers wont touch. The first sold for £30k more than purchase price after a refurbishment, the second is returning a 9.5% yield tenanted.

look at the actual costs rather than the category, leasehold shouldn't automatically put you off.

Peppercorn rent: Peppercorn rent is a phrase in its own right, dating back several centuries, meaning a very low, nominal or token rent given as “a simple acknowledgement that the tenement virtually belongs to the person to whom the peppercorn is given”, as Brewer’s Dictionary of Phrase and Fable has it. But this negligible financial exchange was once quite literally pepper-based

Maybe that's the way to deal with this lark? Pay up front for a long period of time on the ground rent?

If my maths is correct (which is sometimes debatable...:rotfl:) then I would have figured it out as worth my while to send them £500 and an accompanying letter stating that I had paid the ground rent for the next 1,000 years and requesting written receipt for my money and telling them to make a note on their files to send a letter to whoever owned the house in 1,000 years time for the next installment of ground rent. Oh yes...I would.....

Mr.Generous

moneyistooshorttomention wrote: »

Maybe that's the way to deal with this lark? Pay up front for a long period of time on the ground rent?

If my maths is correct (which is sometimes debatable...:rotfl:) then I would have figured it out as worth my while to send them £500 and an accompanying letter stating that I had paid the ground rent for the next 1,000 years and requesting written receipt for my money and telling them to make a note on their files to send a letter to whoever owned the house in 1,000 years time for the next installment of ground rent. Oh yes...I would.....

Ah but you have to check the agreement, the ground rent on the two I mentioned was fixed, it could not be increased.

One we looked at once had some sort of charge that had to be paid to the local church regardless of who owned the house and it could be increased every few years. It was called a Chancel charge, look out for that one too if you don't want to subsidise a fat Bishop driving a Jaguar.

Chancel repair liability is a legal obligation on some property owners in England and Wales to pay for certain repairs to a church which may or may not be the local parish church.
Where people own property within land that was once rectorial (part of a rectory or glebe), they may have wittingly or unwittingly acquired a responsibility to fund repairs to the chancel of the medieval-founded Church of England parish church or Church in Wales church which that glebe land supported. This can still be invoked by the church council of some parishes.[1]
It is currently common practice for purchasers of land to check whether the local parish includes a church where such a liability may apply, and if so to take out chancel liability insurance

katejo

I had to have leasehold for my first flat (unavoidable) but would never do it again and certainly never a leasehold house.

Richard_Webster

Anyone buying a new build house with a 999 year lease with ground rent 0f £295 doubling every 10 years should be very strongly warned by their solicitors of the implications and likely difficulties in selling. Almost professional negligence not to do so.

Anyone who wasn't so advised would certainly have good reason to complain later on.

Dreamy FTBs don't understand or want to understand and think new builds are wonderfully good value anyway. They get sent to solicitors who the developers say "have done lots of these already so they know all about them and can give you a quick service..." So the temptation is not to say too much as they want the repeat business, never mind properly advising their pie eyed clients.

However, until buyers of new builds are prepared to walk away from the grossly overpriced offerings, builders will still get away with this kind of thing.

Moral: don't ever go to the solicitor the builder recommends!

Rosemary7391

katejo wrote: »

I had to have leasehold for my first flat (unavoidable) but would never do it again and certainly never a leasehold house.

Not unavoidable in Scotland although leasehold makes a lot more sense for a block of flats than it does for houses; there is no way around joint repair liabilities in flats however you want it structured on paper.

I guess it'll seem like a bargain if we have inflation running above 7% for more than 10 years, but in the meantime...

moneyistooshorttomention

Rosemary7391 wrote: »

Not unavoidable in Scotland although leasehold makes a lot more sense for a block of flats than it does for houses; there is no way around joint repair liabilities in flats however you want it structured on paper.

I guess it'll seem like a bargain if we have inflation running above 7% for more than 10 years, but in the meantime...

...on the other hand - if we get DEflation:eek:

You'd think the Government might start getting concerned - at just how many people are steadily acquiring a vested interest in inflation roaring away....

Davesnave

Mr.Generous wrote: »

Ah but you have to check the agreement, the ground rent on the two I mentioned was fixed, it could not be increased.

Likewise on my first house. The whole small road was the same. I can't remember what it was now, but not much, as the figure was fixed in 1898.

We were supposed to pay the ground rent to a local charitable institution, but they never sent out requests for payment, presumably because the admin would have cost them more money than the revenue collected.

That's a very different situation from that pertaining with l/h new builds nowadays!

Minimalist1978

Forgive my total ignorance. I'm sure there's a simple explanation to the question I'm about to pose but for a MSF (MoneySavingFledgling) these things all seem so complicated.

re. 999 year lease with £500 annual ground rent subject to review every 10 years linked to RPI. Very common, right? Arguably the only sensible way of organising a shared building (a block of buy-to-let student flats)...

To my limited knowledge this arrangement seems to be fine in the short to medium term. Rental income will rise more or less the same as the ground rent and all the buy-to-let investors (like me) will make a tidy profit (8% net yield after all costs and the ground rent has been paid).
All seems rosy until I look at the far future.What happens in the really long term - 100 years... 200 years... down the line - when the building is surely beyond a state in which it can simply be repaired/maintained. At some point the building itself will become uninhabitable...and therefore worthless... and yet I would still be legally required to pay annual ground rent, wouldn't I? Am I missing something?

da_rule

If there was no insurance in place at that time that would protect your rental income (or probably a few successors in title down the line as we are talking hundreds of years away) then yes essentially you would be paying ground rent and service charges for an uninhabitable property. It would be a similar scenario to if your current tenant started a fire which gutted the interior of the flat. Your insurance should cover lost income.

Does any of your payments go into a sinking fund to help pay for major works in the future?

If the property becomes uninhabitable through a reason that you cannot control then you could argue that the lease is frustrated and therefore ceases to exist, but you would be essentially handing it back to the freeholder.

zagubov

Scrap leasehold. Other places have. If it's not actually a scam, it'll do until a proper scam comes along.