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Leasehold ground rent complaints: What housebuilders need to know now

New build semi-detached houses with black doors Print publication

06/03/2017

Sometimes it seems like everything to do with housebuilding today is controversial. Housebuilders face the almost impossible tasks of building more homes without intruding on too much land or on certain types of land; and of developing and maintaining positive relationships with customers and communities in the face of mistrust frequently engendered by developer-unfriendly media.  All of this is, of course, at the same time as trying to run a successful, profitable business for the benefit of shareholders and employees, and against the backdrop of a constantly changing political, economic and regulatory environment.  In addition, these are increasingly consumer-focused times in which, perhaps more than ever, laws are in place to put consumer protection first – and consumers know it.

Walker Morris partner Louise Power, an expert in real estate and consumer protection law, with particular expertise in assisting housebuilders and developers with their regulatory obligations, highlights the concern with leasehold ground rent complaints – the latest high profile consumer issue facing the industry. In this article, Louise explains what housebuilders need to know now.

“the PPI of the housebuilding industry”… “legalised extortion”

This is how Justin Madders MP and the chief executive of the Chartered Institute of Building respectively have referred to the issue of leasehold ground rent clauses in many new-build properties sold in recent years. The media has picked up on the issue, customer complaints are on the rise, and any housebuilders that might be affected need to know the facts; to understand their legal position; and to decide upon an appropriate strategy to resolve any claims which might be levelled against them.

The issue

The issue concerns leasehold houses and flats which have been sold by housebuilders to consumers where the lease includes clauses which provide for ground rent payable by the homeowner to increase at a significant and, crucially, an unexpected rate. The problem is compounded where developers have then sold the freehold interest in the property to another party, who collects those rents and refuses to sell the freehold to the homeowner except in return for a large premium.  In many cases, customers had been told outright, or had at least led to believe by developers’ sales staff, that they would be able to purchase the freehold themselves, shortly after their purchase, for a much lower sum.

The result is that many leasehold owners now feel trapped in a home where they are forced to pay higher ground rents than anticipated, cannot afford to buy-out the freehold owner and cannot sell the property on because the issue has come to light and is adversely affecting saleability. Some retail lenders are also refusing to provide mortgages on properties containing onerous ground rent clauses.

Housebuilders are facing a variety of complaints, including: the allegation that, certainly in the case of detached and semi-detached houses, the leasehold structure is unnecessary and has been put in place merely to extract value via ground rent obligations and sale of the freehold to investors; the detail and significance of the ground rent clauses were not sufficiently brought to the attention of customers prior to and at the point of sale; customers were misled about the potential for them to purchase the freehold and/or the freehold was then sold out from under them to private investment companies; customers felt under pressure to appoint solicitors recommended by the developer (and those solicitors did not then properly advise their client); and that excessive administration fees are charged by developers each time a query or complaint is made by disgruntled homeowners.

All of this has led to the issue being debated in Parliament and to housebuilders being denigrated by the all party parliamentary group on leasehold reform and in the press.

What can housebuilders do?

Walker Morris has significant experience in helping developers to respond effectively to consumer protection complaints so as to resolve disputes, prevent and minimise reputational damage, and to maintain and promote good customer and public relations.

If your business has been or might be affected by leasehold ground rent complaints – or indeed any other customer complaint or consumer protection issue – we can help. Depending on the circumstances of the particular case we may be able to absolutely refute any complaints and allegations levelled against you; we may be able to direct complaints to other parties; we will be able to assist you in negotiating suitable compromise agreements or other innovative solutions wherever there is a liability to be resolved; and we can provide information and education to your staff so as to help protect your brand and your business going forward.

Contact us

For further advice on any of the issues raised in this briefing and for advice about our tailored training options for housebuilders and developers on consumer protection issues, please do not hesitate to contact Louise Power, who will be very happy to help.

For information about, and a sample of, our consumer protection eLearning training package for housebuilders and developers, please click here.

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