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Thursday, September 23, 2021

Countryside scraps leasehold ground rent rises


Thousands of leaseholders who bought homes from a major housebuilder will no longer be subjected to ground rents that double every 10 or 15 years.

Following an investigation by the Competition and Markets Authority, Countryside Properties will maintain rents at the same level as when they first purchased their home.

Countryside is the most recent homebuilder to abandon the “unfair” contract terms.

Millions of buyers signed leasehold contracts, which campaigners claim make mortgages and home sales impossible.

The regulator launched its leasehold investigation in 2019 because it was concerned that leaseholders would face huge and unexpected increases in the cost of purchasing a freehold or massive increases in ground rents, which kick in every 10 to 15 years.

Countryside’s commitment comes after the CMA took enforcement action against four housing developers in September 2020.

Countryside and Taylor Wimpey were fined for using “possibly unfair contract terms,” while Barratt Developments and Persimmon Homes were fined for possibly mis-selling leasehold homes. The investigation into Barratt Developments and Taylor Wimpey is still ongoing.

According to Andrea Coscelli, chief executive of the CMA, Countryside leaseholders will be able to breathe a “sigh of relief” as a result of the contract changes.

“No one should feel like a prisoner in their own home, trapped by terms that make it difficult for them to sell or mortgage their home,” he said.

“As we have done for the past two years, we will continue to aggressively pursue developers and investors to ensure that people are not taken advantage of.”

Some of the biggest names in real estate have recently changed their terms, while others are still under investigation.

In June, Persimmon agreed for its leaseholders to buy the freehold of their property at a discount, while Aviva, which buys freeholds from house builders, pledged to repay homeowners who saw their ground rents double.


What is a leasehold?

With a leasehold, the person owns a lease that grants them the right to use the property, but they must still obtain permission from their landlord for any work or changes to their homes.

When a leasehold flat or house is first sold, a lease is granted for a set period of time, typically between 99 and 125 years, but sometimes up to 999 years – though people can extend their lease or purchase the freehold.

Leasehold property owners, on the other hand, are frequently charged exorbitant ground rent as well as fees if they want to make changes to their homes. It can also be difficult to sell a leasehold home.

There were an estimated 4.6 million leasehold dwellings in England between 2019 and 2020, which equated to 19% of the English housing stock. More than two thirds (3.2 million) of the leasehold dwellings were flats and 1.5 million were houses, official figures said.

The changes, according to Katie Kendrick, founder of the National Leasehold Campaign (NLC), will help people “escape onerous ground rents that make their homes unmortgageable and unsellable.”

“We are overjoyed that Countryside is the latest domino to fall in this sorry saga of doubling ground rents,” she added.

Countryside Properties has confirmed that it no longer sells leasehold properties with doubling ground rents. It will also eliminate terms that were converted clauses that meant ground rent increased in line with the Retail Prices Index (RPI).

Countryside’s chief executive, Iain McPherson, stated that the company “engaged extensively and constructively with the CMA throughout the course of its review to reach this positive outcome for affected leaseholders.”

The agreement to eliminate ground rent increases has been a “long time coming” for Baz Jafar, the leaseholder of a one-bedroom flat sold to him by Countryside.

The 31-year-old, like many others living in the same north London block of flats, discovered the onerous clauses “one or two years” after purchasing the properties.

He told the BBC that the majority of the building’s leaseholders had used Countryside-recommended solicitors.

“We discovered that we couldn’t really switch mortgage companies,” Mr Jafar explained. “We were unable to sell [the homes] because mortgage lenders found the increased terms unacceptable.”

When Mr. Jafar and others raised the issue with Countryside, the company stated that rising ground rent payments were “industry standard.”

“The whole thing stank from the start,” Mr Jafar said. “Countryside says they are delighted to find a solution for leaseholders.” People are only affected because Countryside agreed to write these leases in the first place.

“I’m disappointed that they [Countryside] haven’t admitted liability.” I don’t think they deserve any credit for what they’re doing.”

Taylor Wimpey and freehold investors, according to Dr. Coscelli, have the “opportunity to do the right thing” by removing “problematic clauses from their contracts.”

“If they refuse, we stand ready to intervene and take further action, including through the courts if necessary,” he said.

NCL co-founder Jo Darbyshire, who lives in a Taylor Wimpey home sold in 2010 with a £295 ground rent that doubles every ten years, said it was “about time” for the housebuilder to “do the right thing and match what Countryside are doing.”

When contacted by the BBC, Taylor Wimpey declined to comment.

Housing Secretary Robert Jenrick stated that new legislation would “put an end to this practise” by housebuilders for future homeowners by establishing zero ground rents in new leases.

Ground rents typically begin around £250 per year. Doubling clauses imply that the amount grows over time. Campaigners frequently claim that the leasehold system was not properly explained to them when they purchased their properties, trapping them in unsellable homes.

Three companies have now agreed to change their ways, but the CMA is still looking into Taylor Wimpey and Barratt Homes’ use of ground rent. The government is proposing new legislation to eliminate ground rent on new leases, but homeowners who have previously paid high charges want compensation.

Ground rent is only part of the problem for England and Wales’ four million leaseholders. Because they do not own a single brick of the building, they must obtain permission to do any work on the property and may be charged a fee for doing so.

Developers can also sell your home’s freehold to investors without informing you. Housebuilders claim that leasehold works for some developments, but the system is still controversial, and reforms are slow.

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