Developer agrees to buy back freeholds as storm over leasehold scandal gathers

Property developer Countryside Properties has agreed to buy back some of the freeholds it sold to investor E&J Estates.

The move comes amid government scrutiny of ground rents and practices in the sector.

A letter from E&J Estates to a leaseholder, seen by EYE, says: “Having confirmed that the lease upon which you hold your property contains such as doubling rent review clause, we have been working with Countryside to resolve the issue.

“As a consequence we have completed the sale of the freehold on your property back to Countryside.”

However, a spokesman for campaigners at the Leasehold Knowledge Partnership (LKP) said this had only been agreed on four to five sites, with others where ground rents double every 15 years excluded.

There has been a lot of focus on E&J Estates, which also said it would no longer purchase leaseholds with doubling ground rents, since the Government announced plans to reform leaseholds as it owns or administers approximately 50,000 primarily residential ground rent assets across the UK.

E&J Estates has also provided an update stating its support for reform and detailing how it is reviewing its own freeholds.

It said: “In June 2016 we launched a review of lease terms across our entire portfolio and found 1,961 leases, representing about 3.9% of the portfolio, had been drafted by developers to contain a 10-year doubling of ground rent.

“Since then we have been working hard to change all of these leases such that the ground rents will rise by no more than inflation. This has been a complex process.

“In respect of the 519 leases where the lease income is under our control, we have agreed amendments with 423 leases such that ground rents will not go up by more than inflation. We have contacted every other leaseholder affected and hope to have completed the changes shortly.

“In respect of the leases that we administer but where lease income is contracted to third parties, we are in advanced negotiations with counter-parties in order to change the lease terms such that ground rents will not go up by more than inflation, and expect to reach a conclusion in the coming weeks. We will then be contacting affected leaseholders to seek their consent to make these changes.”

A spokesman for Countryside Properties said: “Wherever possible, we sell properties on a freehold basis. Where we have to offer leasehold properties, we endeavour to make sure that they are affordable on both an initial and ongoing basis.

“Additionally, we have conducted a comprehensive review of properties we have sold on a leasehold basis and have concluded that the vast majority of these homes carry little or no financial risk to the occupier. However, for a small number of leases, we recognise that the 10 year doubling of ground rents increases too quickly and have taken action to address this issue.

“We welcome the Government consultation on leasehold reform and we will of course comply with all recommendations and legislation that comes from it going forward.”

Meanwhile, Taylor Wimpey is continuing to renegotiate terms of leaseholds with freeholders. It set aside £130m for this in April but home owners have complained about slow progress since.

As well as Taylor Wimpey, LKP said it was also awaiting an explanation of how Adriatic Land will resolve the situation around ground rents on its developments

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  1. Rob Hailstone

    This looks like a positive step. Hopefully it will continue, and others will follow suit.

  2. LandlordsandLetting

    The whole concept of residential leases is an absolute scandal and basically leasehold has its origins in the landed gentry, who wanted the income whilst still holding on to their estates. Margaret Thatcher took them on and although she did introduce the very welcome Leasehold Reform Act, the landed gentry were too powerful even for her.

    What ‘Leasehold’ means essentially is that you don’t own it, it’s being lent to you for a few years.

     What’s more, it is incredibly complex as any owner of flats knows. Of course with flats it’s essential to have some overall control but this can and is achieved by all leaseholders having a share of the freehold.

    1. seenitall

      a few years?  999 years?         So a Norman invader in 1066 will just about if he lives for another 48 years get the property back.   I bet there will be banquets and dancing aplenty. 🙂


      1. Beam Splitter

        Slightly more complicated (and unethical) then that friendo as anon-mon73 states below .

    2. PeeBee

      “Margaret Thatcher took them on and although she did introduce the very welcome Leasehold Reform Act…”

      Actually, I don’t think that in 1967 she had that ability – or that she even knew it existed…

  3. anon-mon73

    Seenitall I think you are looking at Northern Leases which are normally 999 but many leases are 125 or 99 years and as such costly every year and awfully costly to renew.

    Cake and eat it comes to mind – sell something and then get paid every year after. multiply this by hundreds or thousands of properties and its a good money spinner.

    1. PeeBee

      “Seenitall I think you are looking at Northern Leases which are normally 999 but many leases are 125 or 99 years and as such costly every year and awfully costly to renew.”

      999 year leases are actually not the ‘norm’ here ‘oop North.  There is a parochialism known as a ‘Tyneside Lease’ on some types of flats which is generally 999 years at a ‘peppercorn’ ground rent – but much of the Leasehold housing stock built throughout the 1900s was on a 99-year term and it is such stock that is suffering most today.

      A £15/annum GR may have seemed manageable on day #1 in the ‘sixties’, by the Millennium it was peanuts – but now generally costs several times more than the original sale price of the property to buy the Freehold for the land it stands upon.

  4. jamess48

    Leasehold tenure is 100% essential and can be satisfactorily applied to the ownership of flats or houses, but there’s no reason why a lease can’t be 999,999 years long with zero ground rent.  The developers who have sold properties in recent years on 125 year leases with escalating ground rents are absolute rascals.

  5. cattwil37

    As an unfortunate “owner” of a leasehold new build house I have to respond to the comments above. I feel that there is absolutely no reason for Leasehold tenure on the majority of houses and that RPI increases are just as bad as doubling due to the uncertainties of the future  index value.  In addition all the comments above have missed the fact that the majority of these leases contain clauses requiring permission for anything from changing mortgage provider to changing the colour of the front door- permission equals a fee payable through a managing agent to a faceless freeholder(e.g £3000 for permission to add a small extension not requiring planning remission) So..the scandal is not just about doubling ground rents, it’s about the whole business model that although legal is definitely unethical in my opinion and only exists to provide a financial asset at my expense.

  6. GuyCharrison

    Leasehold can work well and has done in many cases.  The trouble is some freeholders have become too aggressive in the ground rent reviews (by this I mean reviews at 10 and 15 years) and that has caused the current interest from the Government.  I do find it odd that in the comments there is little talk about why buyers lawyers have not picked up on the issues; one questions if they are often ‘introduced/recommended’ lawyers by the developers?

    Legislation my not be allowed to happen unless freeholders are properly compensated as the lessees did enter into the formal agreement willingly and usually with valuation and legal advise.

    The other thing I find odd is that for the last 20 odd years we have had the Commonhold legislation which gives the lessees a share in the freehold; i have never seen the Commonhold model used.  I can understand why developers have avoided it as they have an additional income by selling the freehold ground rent interest but I do believe that if properly explained buyers, especially now after the press interest, would pay more for a Commonhold rather than traditional leasehold interest.





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