Ground rent scandal - PETITION

kinger101

economic wrote: »

That!!!8217;s actually a very good idea. It!!!8217;s the leaseholders mistake for buying the property in the first place. There!!!8217;s nothing wrong with ground rents. In fact it can be thought of as a form of financing. It appears the leaseholders who complain are a bit too dim to realise it!!!8217;s sometimes an expensive form of financing plus they may have paid a price comparable to an equivalent freehold property.

Leaseholders need to accept they made a mistake. They should have got a surveyor who should have explained if they were over paying or underpaying which is a function of the ground rent terms. The only recourse leaseholders have is possibly the surveyor.

A solicitor would most likely have done their job. Their job is to state what the terms are and what leaseholder will have to pay in ground rent. Not explain how it!!!8217;s such a bad deal as that!!!8217;s where the price comes in and so that!!!8217;s where the surveyor comes in.

My understanding is that buyers were usually offered the opportunity to buy the freehold at the outset for small sum (typicall £3-5K). They declined, not realizing that it might be sold to a third party who'd later demand more.

It was never really a method of financing IMO (given the trivial cost of the FH if purchased at outset). It was a way of fleecing people who lacked foresight to do the due-diligence. The solicitors used were often those recommended by the developer.

Solicitors are acting for the lender as well, and they do actually have a responsibility to point out things that will affect future marketability;

From CML handbook.

5.6.1 The title to the property must be good and marketable free of any restrictions, covenants, easements, charges or encumbrances which, at the time of completion, might reasonably be expected to materially adversely affect the value of the property or its future marketability (but excluding any matters covered by indemnity insurance) and which may be accepted by us for mortgage purposes.


The buyer would not have instructed a surveyor on a new build. The valuation would be for the lenders purposes only.

Crashy_Time

cjdavies wrote: »

They knew about this when buying.

As for doubling every 10/25 years. People's rent usually increase £40-£50 a month each year and others say well it's the market rate, it's no different.

That is open to debate, doubt it happens much nowadays.

steve_jones

The solicitors need to take some of the blame here, I remember being a first time buyer and the developer pushing their solicitor on me as they had agreed a fixed rate of £1000. I went for it and wish I hadn't, they were totally biased towards the developer but then again why would a solicitor care about my interests when they have secured over 100 properties from the developer, a huge conflict of interest.

Also had to pay £550 for documents off the freeholder to sell, these leases are simply a licence to print money. Of course my solicitor didn't mention this at the time of buying, nor that the Greenbelt fee would increase each year (another con)

My ground rent was £250 increasing £250 every 10 years so was sustainable, I sold last year 30K more than I had bought for, I bought at the bottom end of the market so got lucky, this all taught me a lesson on housing buying though, I was young and in love with my new build, selecting the kitchen, bathroom, the whole shiny and new thing etc and not much attention to the lease as I felt I was paying my solicitor for this. I'm sure this is what happened to others caught up in the leasehold scandal.

economic

kinger101 wrote: »

My understanding is that buyers were usually offered the opportunity to buy the freehold at the outset for small sum (typicall £3-5K). They declined, not realizing that it might be sold to a third party who'd later demand more.

It was never really a method of financing IMO (given the trivial cost of the FH if purchased at outset). It was a way of fleecing people who lacked foresight to do the due-diligence. The solicitors used were often those recommended by the developer.

Solicitors are acting for the lender as well, and they do actually have a responsibility to point out things that will affect future marketability;

From CML handbook.

5.6.1 The title to the property must be good and marketable free of any restrictions, covenants, easements, charges or encumbrances which, at the time of completion, might reasonably be expected to materially adversely affect the value of the property or its future marketability (but excluding any matters covered by indemnity insurance) and which may be accepted by us for mortgage purposes.


The buyer would not have instructed a surveyor on a new build. The valuation would be for the lenders purposes only.

Ground rents are a form of financing, whether its actually worth it is another question.

The key to the financing is that you buy the leasehold for cheaper then it costs for the same property but with freehold.

Say F is the market value of the freehold of a property. L is the value of the leasehold and G is the value of the ground rent upfront with GR doubling every 25 years.

Clearly F = G + L. G is the financing through ground rents.

If the GR instead of doubling every 25 years, doubles every 10 years you have G going up in market value and L going down in value by the same amount as clearly F has to be the same (the physical property is identical and hasn't changed).

Because G is not paid upfront in cash but over the course of a lease, whereas L is paid upfront in cash (ignoring mortgages), clearly it really depends whether the buyer has bought L for below, at or above the market value of L.

It seems like the people complaining about being ripped off have only themselves to blame for overpaying. If they were not sure they should have got a survey done independent from any bank, to tell them whether the price they are paying is fair or not. If the surveyor was doing his job, he would know that in the market the leasehold with GR doubling every 10 years would be of price L and if X (price paid by the buyer) is >>> L, then clearly the buyer is overpaying for it on day 1.

The fact they were offered 3-4k for the freehold is irrelevant to the discussion. They can offer whatever they want for it, maybe lower or higher then market price, who cares.

Solicitors don't have a clue about values and the maths behind ground rents (and they are not required to). All they care about is legal obligation and part of that is what the leaseholder will have to pay to the freeholder, how much, when and how it changes over the course of the lease.

economic

steve_jones wrote: »

The solicitors need to take some of the blame here, I remember being a first time buyer and the developer pushing their solicitor on me as they had agreed a fixed rate of £1000. I went for it and wish I hadn't, they were totally biased towards the developer but then again why would a solicitor care about my interests when they have secured over 100 properties from the developer, a huge conflict of interest.

Also had to pay £550 for documents off the freeholder to sell, these leases are simply a licence to print money. Of course my solicitor didn't mention this at the time of buying, nor that the Greenbelt fee would increase each year (another con)

My ground rent was £250 increasing £250 every 10 years so was sustainable, I sold last year 30K more than I had bought for, I bought at the bottom end of the market so got lucky, this all taught me a lesson on housing buying though, I was young and in love with my new build, selecting the kitchen, bathroom, the whole shiny and new thing etc and not much attention to the lease as I felt I was paying my solicitor for this. I'm sure this is what happened to others caught up in the leasehold scandal.

Your solicitor should have given you an pack with details about the property including YOUR legal obligation. They would have mentioned about the ground rents payable. Although from what you said the ground rents were not the problem.

£550 for documents to sell form the freeholder doesnt seem that bad to me, maybe higher then a lot of sales but still within what would be expected to be reasonable. Your solicitor should have said something on the lines of "here is the most important information but its important to read the lease carefully for the full information". Did you bother to read the whole lease before you exchanged/completed? Solicitors do not have to outline every single thing in a lease, but they should give the most important stuff and mention that its upto the buyer to read the lease for ALL the details.

So i am not sure what your problem is. It is YOU who decided to use the developer solicitor, you could have easily got your own one who you know is independent and would do a good job. you are only to blame IMO.

kinger101

economic wrote: »

Solicitors don't have a clue about values and the maths behind ground rents (and they are not required to). All they care about is legal obligation and part of that is what the leaseholder will have to pay to the freeholder, how much, when and how it changes over the course of the lease.

That's not entirely true. They're required to inform lenders of anything that will adversely affect the valuation of the property.

The fact they were offered the FH for £3-4K is relevant to the discussion. While it is foolish IMO to turn down this offer, they might have assumed they'd be able to obtain the FH at a similar price, rather than 10-fold higher. It's not the doubling rent that has trapped them, but their inability for finance the purchase of the FH once the developer has sold it on.

kinger101

Crashy_Time wrote: »

That is open to debate, doubt it happens much nowadays.

Last place I rented, it didn't increase at all in the whole five years I was there.

kinger101

economic wrote: »

So i am not sure what your problem is. It is YOU who decided to use the developer solicitor, you could have easily got your own one who you know is independent and would do a good job. you are only to blame IMO.

Well, yes. But it would be better if selling of legal and professional services by developers and estate agents were banned entirely.

economic

kinger101 wrote: »

That's not entirely true. They're required to inform lenders of anything that will adversely affect the valuation of the property.

The fact they were offered the FH for £3-4K is relevant to the discussion. While it is foolish IMO to turn down this offer, they might have assumed they'd be able to obtain the FH at a similar price, rather than 10-fold higher. It's not the doubling rent that has trapped them, but their inability for finance the purchase of the FH once the developer has sold it on.

The surveyor is for sure. But they should know about the ground rent terms and how that affects the value of the leasehold. But this is a simple valuation and in the grand scheme of things the difference between a lease with rent doubling every 10 years and one where rent doubles every 25 years is not a massive difference - there is more room for error in the general market level of the property market anyway given its so illiquid.

They were foolish to turn down 3-4k sums it up. If they were foolish to do this, then they were too foolish in the first to buy a leasehold property without understanding what they were getting themselves into. If they turned down 3-4k, clearly they did not care about buying it in the first place, and it is only after when trying to sell they decided they had to buy the freehold to make it easier to sell. By the way if a price can not be agreed on the freehold purchase, the leaseholder can always go to the formal process, which should get the "fair" price for the leaseholder. If they can not even afford that without borrowing, then they should concentrate on other things then trying to buy a freehold...

economic

kinger101 wrote: »

Well, yes. But it would be better if selling of legal and professional services by developers and estate agents were banned entirely.

Will cost too much for the taxpayer in terms of regulation. Unless you make the developer and estate agents pay extra taxes for this.