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Ground rents and why you may not be able to sell your leasehold flat

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I have been trying to sell my flat. 

Despite accepting an offer at the beginning of June this year, the sale still hadn’t completed six months later. Not because it wasn’t well presented, desirably located, or priced incorrectly. Indeed, the buyer entered into a bidding war to secure it.

However, my buyer was unable to complete the purchase as major banks and building societies will not lend on the property.

This is due to a tiny clause in my lease on ground rents, the likes of which have become an increasing concern for lenders – and their solicitors.

Lenders have changed their stance on lending on some leasehold flats due to toxic ground rent clauses

Lenders have changed their stance on lending on some leasehold flats due to toxic ground rent clauses

When I bought the property 15 years ago, I was unaware of the implications of that clause buried in the long and densely-worded legal document – and apparently so were my solicitors who didn’t mention it at the time of purchase.

While I successfully remortgaged after first purchasing the property, the last time I refinanced was more than five years ago. And since then lenders have changed their stance on lending on leasehold flats like mine. 

This is due to the clause in my lease being about what have been dubbed toxic ground rents, stating that the current freeholder can increase the payments substantially every 21 years.

Concerns about ground rents have increased so much so that the Government has been looking into them as part of new legislation.

It follows new homes being built with unfair ground rent clauses where the ground rents doubled every 10 years.

If similar increases are applied at future ground rent reviews, flat owners in my block will be paying more then £20,000 a year in 50 years’ time 

My flat recently reached the end of a 21-year ground rent review period. But the ground rent didn’t just double. Instead, it increased from £100 a year to more than £600 a year.

If similar percentage increases were to be applied at subsequent ground rent reviews, flat owners in my block would be paying almost £4,000 a year after the next review, and more then £20,000 a year in around 50 years’ time. 

It is no wonder that some lenders are becoming so concerned about such clauses that they are refusing to lend on them. 

My freeholder of 15 years has pledged on its website that it is ‘writing to all leaseholders with a clause in their lease where the ground rent doubles more frequently than every 20 years to inform them of the opportunity to enter into a voluntary Deed of Variation to vary this review clause’. 

To date, I have never received such a letter or details of how much it would cost.

It is unclear exactly how many flats are affected by such clauses – conservative estimates suggest that the figures are in the tens of thousands, but officials have confirmed behind closed doors that the reality is substantially higher. 

It means those with toxic ground rent clauses are left with effectively worthless assets unless they are able to find a cash buyer for their property.

Those with toxic ground rent clauses are left with effectively worthless assets unless they are able to find a cash buyer for their property

Those with toxic ground rent clauses are left with effectively worthless assets unless they are able to find a cash buyer for their property

What are the options? 

It became clear that one way of moving forward was to buy the freehold to our block of flats. This would allow the residents to remove the unfair ground rent clause, via a new lease extension.

A potentially cheaper option is to purchase a deed of variation (see below for the story of someone doing this). 

However, buying the freehold has other benefits, including being able to appoint a management agent, rather than being assigned one by an external freeholder. 

We first began discussing buying the freehold among the residents around six years ago and had a failed first attempt. But then we picked up the idea again a few years later and ran with it. 

My intention was to stay living in the flat, however, the cost of borrowing the money needed to buy the freehold means I can no longer afford to stay.

It was hoped that our freehold purchase would go ahead earlier this summer but the process was dragged out by several unnecessary delays. Freehold purchases should typically only take six to eight months.

There are various steps to buying a freehold and once we were in with a shot, we appointed a ‘project manager’ at the start, along with a solicitor and a surveyor.

The project manager assisted in some of the basic administration, such as setting up a company for buying the freehold with residents each allocated a share in the company. He also set up a bank account and collected a total of £300,000 from the 12 residents to cover the costs of the entire exercise.  

He initially insisted the freehold transfer would go ahead earlier this summer, a year since our first residents zoom meeting with him – after which he started collecting cash from the leaseholders. 

At this point, I found myself a buyer.

But the project manager didn’t apply for the freehold on our parking spaces at the same time as our flats, something that could have saved months in unnecessary delays

He also failed to make sure everyone received or signed the required paperwork at crucial points in the process, leading to the process being stretched out even further.

Outdated leasehold system 

It is hardly surprising that the outdated leasehold system continues to exist in its current format when there are so many parties benefitting financially from its existence.

No ordinary leaseholder in a large block of flats could reasonably be expected to navigate the process of buying a freehold on their own – and each of the different parties involved charged us a fee.

Even these so-called experts refused to acknowledge the true impact of our toxic ground rent clauses. 

Indeed, our project manager insisted early on that I was able to sell my flat at any point and that buying the freehold – which would allow for the removal of the ground rent clause through a lease extension – wasn’t necessary. 

What hope is there for Aunt Maud in Leicester to understand the implications of what she is buying when the experts charging leaseholders don’t?

The unfair clause in the lease should have never been allowed. And they need to be banned for both future and existing leaseholders.

Action on ground rents 

The good news is that unfair lease clauses are being clamped down on, as they are being investigated by the Competition Markets Authority.

Leasehold Reform Bill

The Leasehold Reform (Ground Rent) Bill will put an end to ground rents for new, qualifying leasehold properties in England and Wales.  

However, the new regulation will not resolve the issue for those who already own a home with a toxic ground rent clause. These homeowners will still find it difficult to sell their home without a cash buyer or paying to remove the clause via a deed of variation.

As a result of its investigations, the property developer Countryside has agreed to scrap unfair contracts that saw leaseholders subjected to ground rents doubling every 10 to 15 years. 

And Taylor Wimpey has said that it will remove ground rent clauses that double every 10 years. 

Other developers and investors must now do the right thing and also remove problematic clauses from their contracts. 

If they refuse, the CMA has already indicated that it is prepared to take them to court, which could set an important precedent that these types of clauses are unfair and unlawful. 

It would be a huge support to leaseholders with doubling or uncapped clauses in their leases to know that a court has said they are unlawful. 

There are also investors and other organisations who bought these freeholds as an investment and were unaware of the toxic ground rent clauses. They would also benefit from a change in the law.

Leasehold reform 

Perhaps one of the reasons that such clauses have been allowed is indeed a lack of regulation of the sector and those who operate within it.

Liam Spender, of Velitor Law, explained: ‘Any other time you are responsible for someone else’s money, there is a very tight system of regulation.

‘They would come down on you like a ton of bricks if you misappropriate a penny piece.

‘With leasehold, they let any old crook set up an agency – even if they have only a couple of small buildings, they could easily have more than £1million in client money – and they just treat it like their own personal piggy bank.’

New leasehold regulations 

The Government is aware of this failure within the property market, and yet there is still no date for it be regulated.

Every day that the position remains unclear, another person is added to the list of those affected by this toxic ground rent situation 

The legislation needs to put in place the checks and balances to ensure that the leasehold position cannot be abused by those want to profiteer from it – and if they do abuse it, that there is regulation or an ombudsman in place.

Regulation is being worked on. But we need to know how people are able to get out of these toxic ground rent situations without having to pay tens of thousands of pounds just to sell their property.

Every day that the position remains unclear, another person is added to the list of those affected by this toxic ground rent situation.

I have to pay to sell my property 

Alistair Dennis has been trying to sell his flat for the past year

Alistair Dennis has been trying to sell his flat for the past year

Alistair Dennis, 37, has been trying to sell his flat for the past year and feels his life is on hold until it is sold.

He is unable to find a cash buyer and has been told by his estate agent that no lender will offer finance on it anymore.

Alistair got in touch with his developer Shanly Homes about a deed of variation to lower the ground rent. This would reassure lenders and encourage them to lend on the property.

Alistair explained: ‘I got in touch with the developer and was told that it would cost me £8,000 to change the provision in the lease.’

‘My partner and I would like to pool our resources and buy a house together to start our family but this is putting our lives on hold.’

Alistair’s flat is in a block of 70 flats in Maidenhead, Berkshire, on a site where there is double the number.

He said: ‘The agent didn’t initially raise this as an issue but perhaps they didn’t know at that point.

‘Second hand flats are losing their values and only the developers are benefiting. The only way out for us is to pay money so we can sell our flat.’

Alistair bought the flat in 2015 and pays £500 a year in ground rent. That ground rent increases every 20 years by the greater of £500 or RPI.

Since buying the flat, he has also seen his service charges increase from £1,200 a year to £2,800 a year. 

He said: ‘I had no expectation that this would happen and that I would not be able to sell my flat. And the only way to sell the flat is to pump more money into it.’

Shanly Homes was approached, but declined to comment. 

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Leaving Cert may end up as traditional exam as ‘school profiling’ ruled out

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The Leaving Cert may end up as a traditional exam this summer with additional choice for students after officials ruled out the use of “school profiling” for a hybrid model.

Taoiseach Micheál Martin and other party leaders were informed by senior officials earlier this week that a hybrid or accredited grades model – based on teachers’ estimates – might need to draw on schools’ historical results in the Junior Cert exams.

This is due to the absence of exam data for about 25 per cent of this year’s Leaving Cert candidates, who did not sit the Junior Cert in 2020 when it was cancelled due to Covid-19 concerns.

This data is regarded as crucial in the standardisation process, which aims to ensure teachers’ estimated grades in different schools are equitably awarded.

However, Government sources said the use of this data has now been ruled out in the event that some form of accredited grades is used because it could prove to be as “too problematic”.

A decision on the format of this year’s Leaving Cert is likely in the next week or so.

The Government had planned to use school profiling in 2020 when Leaving Cert exams were first replaced by a system based on teachers’ estimates.

However, it dropped the plan following opposition claims this could penalise students attending school in disadvantaged areas.

Officials are now understood to be examining whether it is possible to generate accredited grades in a different way that is fair and equitable.

One Government source said it was their understanding that Leaving Cert options have now narrowed. “It seems to be edging towards traditional exams this year, with greater choice for students,” they said.

Disruption

While additional choice in questions in the forthcoming State exams were announced last August, officials have been exploring ways of going further due to the level of Covid-related disruption which has occurred since.

This could see a similar level of choice incorporated into the summer exams as was used last year.

Another Government source said all options were still being considered and nothing had been ruled out. “Things are still at a delicate stage,” they said.

Students are calling for the introduction of a hybrid Leaving Cert on the basis that many have experienced significant disruption to their studies due to the pandemic.

Teachers’ unions are opposed to grading their students for the purposes of the Leaving Cert and say further adjustments to the exams are needed.

It is understood Mr Martin, along with Tánaiste Leo Varadkar and Green Party leader Eamon Ryan, were briefed on potential options for the format of this year’s exam on Monday by Minister for Education Norma Foley and her officials.

The decision to omit school profiling in the 2020 Leaving Cert was at the centre of an legal challenge taken by Belvedere College student Freddie Sherry, who argued that the decision impacted unfairly on his results.

However, the High Court ruled that the Government was fully entitled to make changes to the standardisation model which they considered to be in the public interest.

It found that Mr Sherry had not shown he, or Belvedere, were subject of an unfairness arising from the final approach taken and had “certainly not” established an unfairness that would lead the court to conclude the system was unlawful.


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Voco Hotels debuts in Germany

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IHG Hotels & Resorts, acting in partnership with Hotelite Management, has opened its first voco hotel in Germany; voco Dusseldorf Seestern. Located in the Lorick district of the city, voco Dusseldorf Seestern is a great premium option for those visiting Dusseldorf for business or leisure. The hotel is within walking to distance to the banks of the Rhine river and a short drive from the airport and the city’s main shopping and business districts.

 

With 160 rooms, voco Dusseldorf Seestern, embodies the brand’s design ethos by creating a warm and inviting space with playful and bold decorative touches throughout. The use of bright, warm pops of yellow give voco its distinct identity. All the rooms include signature voco touches, such as high-quality bedding made from 100% recycled materials and eco-friendly large size bathroom amenities from Antipodes, an award-winning plant-based organic skincare company. Guests will also have access to a fully-equipped onsite fitness area including a sauna and steam room, perfect for those looking for a bit of me-time.

 

Offering all-day dinning, the hotel’s ‘Restaurant & Bar 38’ offers a great selection of meals all prepared with the finest organic ingredients. For breakfast, guests will find anything from a continental breakfast to a full English breakfast, as well as an assortment of healthy snacks to choose from. For lunch and dinner, Restaurant 38 offers an a la carte menu filled with local and international dishes. Come evening, Bar 38 is the perfect place to unwind from the day. Whether it be enjoying a cold drink whilst watching live sports on the screens or enjoying a cocktail on the terrace with friends, family, or work colleagues – there is a space for everyone.

 

For business travellers, voco Dusseldorf Seestern has five modern meeting rooms with a capacity of up to 140 participants – all fitted with the latest technology to enable hybrid meeting requests.

 

Oliver Walzer, Cluster General Manager of Hotelite, commented: “We are proud to be the first voco hotel in Germany and are looking forward to inviting our first guests to come and experience what the brand is all about – especially in Dusseldorf, a city where fashion, culture and commerce meet. Whether it be a short city break or a business trip, our onsite hosts will make sure that visitors will have a charming, unstuffy and playful experience that brings out the very best in them.” 

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Detached homes see average values up £60k during the pandemic says Halifax

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The pandemic property boom has been driven by a surge in demand for larger homes, new research has revealed.

The average value of a detached home in Britain has risen at almost twice the rate for flats, according to the data from Halifax and IHS Markit.

Buyers can expect to pay on average £425,177 for a detached property, which is an increase of £60,556 or 17 per cent since March 2020.

Buyers can expect to pay on average £425,177 for a detached property, which is an increase of £60,556 or 17 per cent since the March 2020

Buyers can expect to pay on average £425,177 for a detached property, which is an increase of £60,556 or 17 per cent since the March 2020

It compares to an increase of around 9 per cent for a typical flat during the same period, where values have risen on average £13,325 to an average of £158,992.

At the same time, the average price of a terrace property has risen 15 per cent or £27,715 to £213,798, while semi-detached also rose 15 per cent or £36,841 to £280,090.

HOUSE PRICES BY PROPERTY TYPE
All Houses All Buyers UK Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 15.40% 9.10% 14.90% 15.10% 16.60%
Price Change (since Mar ’20) £33,820 £13,325 £27,715 £36,841 £60,556
Average price Dec 2021 £276,091 £158,992 £213,798 £280,090 £425,177
Source: Halifax/IHS Markit        

The data also highlighted the widening of the gaps between each type of home, with flat owners expected to spend an extra £54,806 to upsize to a typical terrace house, compared to £40,416 in March 2020.

At the same time, those currently in a terrace would need a further £66,292 to own a semi-detached home, compared to £57,166 in March 2020.

Meanwhile, home movers hoping to switch from a semi-detached to a detached property need an additional £145,087, compared to £121,371 in March 2020.

REGIONAL HOUSE PRICE CHANGES BY TYPE
% Change (since Mar ’20) All Flat Terraced Semi-Detached Detached
East of England 13.00% 7.40% 14.20% 14.80% 14.30%
Northern Ireland 14.30% -2.40% 15.20% 16.70% 13.40%
South West 18.40% 10.90% 19.00% 19.50% 20.20%
London 6.40% 0.70% 6.80% 7.60% 12.40%
Scotland 12.10% 9.60% 14.20% 13.70% 16.30%
West Midlands 14.60% 7.10% 12.60% 15.50% 17.40%
East Midlands 15.50% 12.10% 16.50% 17.50% 19.00%
North West 18.20% 13.40% 18.80% 17.00% 21.90%
Wales 21.90% 11.70% 25.10% 21.20% 24.40%
North East 14.40% 14.30% 19.80% 11.80% 15.50%
South East 13.10% 7.40% 13.70% 13.80% 15.40%
Yorkshire 16.50% 4.30% 15.40% 17.00% 18.30%
Source:  Halifax/IHS Markit        

Wales and the North West saw the greatest increase in detached home prices, up 24.4 per cent and 21.9 per cent respectively.

The most expensive detached homes are in London, at an average £910,568. The 12.4 per cent increase is almost double the average of all property types in the capital.

Russell Galley, managing director, Halifax, said: ‘Record numbers of moves have been taking place throughout the pandemic, with the demand for detached homes now greater than for any other property type, meaning the competition for those looking to buy an often larger property is fierce.

‘As employers began to crystalise longer-term plans for home and hybrid working, buyers have been able to consider homes further afield as the need to commute falls away, with properties previously considered too remote now giving families extras like garden rooms and home offices.

This trend means Wales, with its beautiful countryside and lower relative property prices, saw the strongest growth in detached homes over the past two years.’

REGIONAL HOUSE PRICES BY PROPERTY TYPE DURING THE PANDEMIC
East of England All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 13.00% 7.40% 14.20% 14.80% 14.30%
Price Change (since Mar ’20) £36,767 £13,340 £34,669 £45,351 £63,141
Average Price Dec 2021 £319,447 £192,721 £279,087 £352,699 £505,379
Northern Ireland All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 14.30% -2.40% 15.20% 16.70% 13.40%
Price Change (since Mar ’20) £21,448 -£2,327 £14,027 £22,012 £25,600
Average Price Dec 2021 £170,946 £94,922 £106,105 £153,917 £217,226
South West All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 18.40% 10.90% 19.00% 19.50% 20.20%
Price Change (since Mar ’20) £44,773 £17,038 £38,716 £49,973 £76,380
Average Price Dec 2021 £287,774 £173,502 £242,285 £306,171 £454,133
London All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 6.40% 0.70% 6.80% 7.60% 12.40%
Price Change (since Mar ’20) £31,724 £2,657 £33,159 £44,891 £100,525
Average Price Dec 2021 £525,351 £371,744 £520,359 £635,422 £910,568
Scotland All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 12.10% 9.60% 14.20% 13.70% 16.30%
Price Change (since Mar ’20) £20,795 £9,789 £18,433 £23,357 £39,783
Average Price Dec 2021 £192,988 £112,075 £148,224 £193,975 £283,214
West Mids All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 14.60% 7.10% 12.60% 15.50% 17.40%
Price Change (since Mar ’20) £29,778 £8,625 £20,532 £33,265 £57,685
Average Price Dec 2021 £234,263 £129,851 £184,061 £247,881 £389,553
East Midlands All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 15.50% 12.10% 16.50% 17.50% 19.00%
Price Change (since Mar ’20) £30,275 £13,536 £24,346 £33,919 £57,186
Average Price Dec 2021 £225,106 £125,563 £171,686 £227,336 £358,441
North West All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 18.20% 13.40% 18.80% 17.00% 21.90%
Price Change (since Mar ’20) £32,591 £14,070 £24,426 £31,917 £63,229
Average Price Dec 2021 £211,954 £118,979 £154,308 £219,294 £351,887
Wales All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 21.90% 11.70% 25.10% 21.20% 24.40%
Price Change (since Mar ’20) £36,917 £11,570 £30,111 £34,639 £62,688
Average Price Dec 2021 £205,579 £110,318 £149,966 £197,768 £319,492
North East All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 14.40% 14.30% 19.80% 11.80% 15.50%
Price Change (since Mar ’20) £20,162 £11,527 £20,071 £17,666 £37,373
Average Price Dec 2021 £159,694 £92,214 £121,187 £166,876 £278,863
South East All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 13.10% 7.40% 13.70% 13.80% 15.40%
Price Change (since Mar ’20) £43,298 £15,502 £38,704 £49,203 £78,220
Average Price Dec 2021 £374,454 £223,610 £320,944 £404,648 £586,781
Yorkshire All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 16.50% 4.30% 15.40% 17.00% 18.30%
Price Change (since Mar ’20) £27,192 £4,708 £19,442 £29,624 £50,192
Average Price Dec 2021 £192,210 £114,535 £146,081 £203,805 £324,581
Source: Halifax/IHS Markit         

North London estate agent Jeremy Leaf said: ’Soaring demand for detached homes is not surprising as we are seeing buyers prepared to stretch themselves to purchase properties which they regard as for the longer term, rather than settling for smaller houses or flats. 

These buyers are often using money saved during lockdown by not going on holiday or other spending, to contribute towards their deposit. They are also taking advantage of continuing low interest rates even though the threat of higher repayments and inflation is looming.

‘Detached homes have long been the pinnacle in terms of what people aim for when buying property. They are popular because they offer flexibility, privacy, control and independence, which isn’t always the case with semi-detached or terraced properties where there is an element of shared space or boundaries, increasing the risk of conflict.

‘Price growth has been strongest in Wales because often affordability is greater in those markets in the first place. We have noticed the drift from the centre of towns and cities to the suburbs, country and coastal areas as people get more accustomed to hybrid working and not having to spend as much time in the centre. They are looking for higher-quality outside space and the ability to work comfortably from home.’

Separate research by Coutts found that demand has also been high for luxury leafy lodgings in the capital.

It said that sales for super prime homes worth £10million or more jumped from 56 in 2020 to 106 in 2021.

Peter Flavel, of Coutts, said: ‘For many investors these prime and super prime properties provide the opportunity to put funds into assets that offer the space they need as hybrid living continues to influence lifestyle choices.’

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