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Builders begin buyback of controversial leaseholds

  • 08/08/2017
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Builders begin buyback of controversial leaseholds
Property developers have begun buying-back controversial leaseholds with clauses that double ground rent every 10 years.

Rapidly escalating leaseholds have been a major issue for builders as the practice has been exposed and widely criticised, prompting a government consultation into banning the practice.

Earlier this year, builder Taylor Wimpey set aside £130m to tackle the problem with its leasehold properties – a bill which hit profits by 24% in the first half of the year.

Now, according to a report in the Guardian, developer Countryside Properties has begun buying back some of the most controversial leases it sold to management companies.

The Guardian states that Countryside has agreed to buy back freeholds on some properties it built with the intention that it will remove these 10-year doubling clauses.

However, it appears this only addresses a handful of sites which were built by Countryside where the leaseholds were sold to E&J Estates, and may not apply to contracts where ground rents double every 15 years.


Taken action

Countryside told Mortgage Solutions: “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.

It added: “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.”

Countryside did not address questions about whether it would tackle leaseholds where the ground rent doubled over different timescales, however its chief executive Ian Sutcliffe has previously said it would not.


Changing terms

E&J Estates owns around 40,000 leaseholds across the country and a June 2016 review found 1,961 leases (about 3.9% of its portfolio) contained a 10-year doubling of ground rent as drafted by developers.

It said since then it had been working through the “complex process” to change these so that ground rents will rise by no more than inflation.

It added it had changed its investment criteria to ensure no further leaseholds containing similar 10-year doubling of ground rents can be acquired or administered by E&J.

In response to the government’s consultation on banning leaseholds for new build houses, E&J said: “The leaseholder structure is highly effective where multiple dwellings share common services, such as in new build flats, and there is also clear legislation to protect leaseholders.

“But there are also examples of unnecessary leasehold structures, for example in new build houses which share only limited common services or none at all. There have also been examples where leases containing ground rents that double every 10 years have prevented the proper value or sale of an affected property.

“The government and the media have played a key role in highlighting these issues and we are fully supportive of the government’s recent consultation into certain leasehold practices.”

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