Unfair leasehold terms - what are your legal rights?
07 September 2020
With four of the UK's largest house developers currently under investigation over their sale of leasehold properties, we explain your legal rights on unfair leasehold terms.
Is your leasehold property impacted by unfair ground rent increases or adverse clauses? For a free 15 minute consultation call Co-op Legal Services on 0330 606 9736 or contact us online and we will help you.
Until relatively recently, there was a growing trend among housing developers to sell new houses on a leasehold basis, which burdened buyers with onerous ground rent and consent requirement terms. These were long leases which left many buyers facing exponentially rising ground rents and unexpected bills stretching to tens of thousands of pounds.
The Government announced in July 2017 that it would be putting an end to this practice. The Department for Communities and Local Government launched a consultation on banning new build houses being sold on a leasehold basis to stop home buyers from being exposed to "long-term financial abuse".
Four of the UK's largest housebuilders are now facing action from the Competition and Markets Authority (CMA), which has demanded information about how they have been operating. If it's found that any of the developers have been mis-selling leasehold properties or selling leasehold properties with unfair contract terms, they could face court.
The CMA have told other firms to review their policies around leasehold clauses. It has also previously stated that homeowners who have been affected will be refunded.
If you're not sure whether a house is leasehold, see our article what is the difference between leasehold and freehold?
What Are Unfair Leasehold Terms?
Historically, a typical ground rent on a leasehold property would increase in line with the Retail Price Index (RPI).
However, a number of house builders applied ground rent clauses in their leases which impose ground rent increases far above the RPI. Many of these clauses double the ground rent every five or ten years. So under a ground rent lease that doubles every 10 years, an initial yearly ground rent of £500 will increase to £16,000 a year over 50 years. The leases can be up to 999 years long.
In addition, buyers were also being unexpectedly hit with other substantial fees.
The Government cited the following examples of abuse:
- A homeowner being charged £1,500 by the company to make a small alteration to their home
- A family house that is now unsaleable because the ground rent is expected to hit £10,000 a year by 2060
- A homeowner who was told buying the lease would cost £2,000 but the bill came to £40,000
There have also been reports of developers selling the freeholds onto a third party investment company without the homeowner's knowledge, who would then raise the cost of ground rents.
Potential mortgage lenders are reluctant to lend on leashold properties with these types of clauses, meaning the properties can be difficult to sell and are often worth considerably less than what was paid for them.
What can you do?
Seek a Deed of Variation of Lease from your house builder, or more probably the investment company to which they have sold the freehold interest in your home, removing or reducing the ground rent and consent requirement clauses.
Acquire the Freehold interest in the property.
Bring a Professional Negligence claim against the Solicitor or Conveyancer which acted for you in purchasing your home.
Solicitors and Conveyancers are under a duty to provide advice to home purchasers about the existence and impact of onerous ground rent clauses, including the impact of such clauses on the value, saleability and cost of renovating the purchased property. If they have failed to provide appropriate advice, they can be required to compensate you in respect of your resultant financial losses.
You will usually have six years from the date of entry into a contract for the supply of conveyancing services within which to start Court proceedings. Although it is sometimes possible to pursue a claim more than six years after this date, it is always safest to start a claim within six years of your original instruction of the Solicitor or Conveyancer concerned. Otherwise, your claim could be out of time, and you will be unable to pursue it further.
It is important that you seek legal advice, particularly if it is more than five years since you purchased your property.
How Co-op Legal Services can help you
Our specialist Solicitors can:
- Provide you with free initial legal advice as to your options
- Assess if you have a professional negligence claim to compensate you in respect of your losses; and whether we can act for you on a No Win No Fee basis.
It is part of the Co-op’s ethos and values to provide help and support in enforcing legal rights so as to prevent injustice, and we will always strive in appropriate cases to secure the best possible compensation.