There has been a great deal of press about a ground rent scandal and the difficulty onerous lease provisions put householders in, both in relation to the sums payable, use of the property and indeed selling it.

 

Leasehold Titles – The Ground Rent Scandal Basics

In short, housing developers are commonly selling houses with leasehold titles. The developers retain the freehold title, although they are free to sell that on to third parties.

If a house is owned leasehold, it means that the freeholder has given the right to live in the property for the number of years specified in the lease. It is a contract. It was usually the case that leasehold titles were for considerable periods, such as 999 years and therefore with no real threat of them expiring or the length remaining affecting the value of the property. However, some developers are selling properties with much shorter leasehold periods, such as 150 years, 100 years or even less.

 

Increases in Ground Rent and Other Payments

The ground rent scandal goes much further than the length of the lease. Developers are now being criticised for including onerous clauses in the leases, that greatly restrict what the buyers can do with the property and also the amounts that have to be paid in relation to ground rent and other sums that fall due under the terms of the lease.

Many homeowners with leasehold titles are finding that the ground rents are increasing at quite some pace under the terms of the lease. One of the main terms facing criticism is the provision for reviewing the ground rent. Historically, ground rents on residential properties were set at very low amounts (tens of pounds) and were without provision for them to be increased. In the modern leases, developers are inserting provisions for the grounds rents to increase considerably and quickly.

Some developments have common areas and facilities which need to be maintained, such as private roads and electric gates. The freeholder will seek to recover the cost of those works through service charge. This can come as a surprise to homeowners.

Also, many leases impose restrictions on what the homeowner can do to their property without the freeholder’s consent. The freeholder’s consent usually comes at a price. For example, if someone wants to add a conservatory or extension, and the lease requires the freeholder’s consent, the freeholder will expect to be paid for that consent.

The Leasehold Valuation Tribunal is very helpful in relation to guidance over disputes with freeholders and has a mechanism to resolve many types of dispute.

Many will have been unaware of these issues when buying the house.

Even worse, is that some lenders are not lending money when the leases are too onerous, making it difficult for homeowners to remortgage or sell.

 

How Come People Were Not Aware Of This?

Many people will be looking at how they ended up buying a property without knowing or understanding the terms of the lease and will be looking at the solicitors they used on the purchase for an explanation. Solicitors and their insurers may well be facing a number of complaints and / or negligence claims in the next few years. Negligence claims can be technical and complicated but may also fall within the small claims track if the value of the loss is less than £10,000.

Whether a negligence claim against a solicitor for negligent advice about the leasehold title will be a small claim or not very much depends on the value of the loss, which will be difficult to put a figure on. It may require expert valuation evidence on the effect on the value of the property.

The government is investigating these problem leases and the practices of the developers in using them. It may well be that they are controlled or banned in the future. Where that leaves people already owning a leasehold title with onerous terms, remains to be seen, as we doubt any of those already in place will be affected retrospectively.

Currently, it is the developers who are coming in for criticism as it is they who a reaping the benefit of the onerous terms in the lease but they will no doubt seek to push the blame on the advisors of the buyers. The ground rent scandal still has some twists and turns and it will be interesting to see what restrictions or sanctions the government seek to impose upon developers going forward.

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