Campaigns

Leasehold: What are the chances of Justin Madders 10 Minute Leasehold Bill being enacted in Parliament?

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On 7th November, MP Justin Madders, on behalf of the 125-member All Party Parliamentary Group on leasehold, piloted a 10 minute Bill through Parliament seeking to protect current trapped house leaseholders. How likely is it the Bill will eventually become law given the odds being stacked heavily against Private Member Bills?

There are three ways of looking at it. Firstly, as with a gamble, to be in with a chance, you have to be in it to win it. Second, with a long running success rate of only around 1 in 20, if you look at the statistics, you’d wonder why people bother with Private Member Bills. But the third is, if you don’t like the odds, you can go out and change the odds, or change the landscape. We’re going to explore it from these angles.

First, a brief reminder of what Justin Madders has set out to do.

The Government is minded to scrap leasehold being applied on houses, but it is very unclear what they will do about current leasehold houses. If they try and row back on these, the ground rent companies and their investors will lose hundreds of millions of pounds of income. They and their lobbyists will not take this lying down. Justin Madders’ bill sets out to, amongst other objectives, guarantee that the rights of house leaseholders already trapped are retrospectively upheld in the new arrangements.

On 7th November 2017, the 10 Minute Bill passed unopposed, helped in huge part by the 125 members of the cross-party All Party Parliamentary Group on leasehold. The second debate is due on 2nd February 2017. These are the following possible outcomes.

  • It will go through.
  • It will be voted down.
  • The Government will gauge the support, and consider merging all or part of the bill to other leasehold reform legislation.

Firstly the political landscape. It does seem the case that up until 2010, without anything else being considered, the average 10 minute Private Member’s bill does have a slightly better chance of success when the government has a weaker majority.  The Theresa May Government is noticeably weak.

Next, as the Government can, one way or another, derail the bill’s progress at any point (which is why having a weaker government helps, a bit), then the movers of the 10 Minute Bill need to spend the intervening period between the first and second reading, identifying opposers and swing voters, and meeting regularly with them and urging them to support the Bill. The lobbyists for the builders and ground rent companies (which does include The Crown Estate) will be doing the same thing, but in the opposite direction and behind the scenes. At present, after the first shock of publicity earlier this year, the ground rent companies are playing a waiting game, and their investors are continuing to pay over the odds In one case 30 times the 1st year ground rent of £625 pa is being advertised to buy the leases.

What are the threats?

  1. A PM leadership battle breaks out and is won by a supporter of the current leasehold law.
  2. Campaigners and/or Parliamentarians are insufficiently active over the next 90 days.
  3. There is a battle in the Lords between the old leasehold barons and other Lords members at Committee stage and afterwards.
  4. To show some sort of strength and stability against Labour as a principle in some other sticky time, the Conservatives come out in force to vote it down.

The Campaigners’ Advantage

However what really helps here is that leaseholders have a large and active APPG of 125 members. If all 125 can be persuaded to actively press the cause for the next 3 months, then given the weakness of the Government, and that DCLG has already declared movement on leasehold, builders’ lobbyists might not be able to persuade the Government to whip a vote against a 2nd Reading. Furthermore, if a lot of people-powered parliamentary support can be maintained over the next 3 months, there is a reasonable chance that either the 10 Minute Bill will go to Committee stage, or that it will be included in some way in the current post Leasehold consultation presently being undertaken.

Campaigners – get writing those letters!

The purpose of this blog post is to provide information about a new campaign group, HALO, or Houseowners Against Leasehold OppressionIt is being set up and run by a campaign steering group whose members are themselves victims of leaseholder oppression, with campaign facilitation managed by an experienced campaigning business called Make Public.  We seek to replicate the styles and persuasive voices of the successful national WASPI and Equitable Life EMAG campaigning groups.

Find out more and join us.  Visit:

and we’ll keep you fully informed.  Our first action when several hundred signups have come in will be to advertise to bring the HALO: Steering Group together, then open up the membership site and provide you with the campaign strategy all parties will work to.

This page and the Facebook page are being updated.  

Keep fighting back!

Chris Clark

HALO – Houseowners Against Leasehold Oppression and Make Public

COPYRIGHT © 2017 – HALO – HOUSEOWNERS AGAINST LEASEHOLD OPPRESSION

 

Chris Clark
HALO/Make Public

 

Chris Clark F.IDM, MBA
Chief Executive
HALO: Houseowners Against Leasehold Oppression
The Finsbury Business Centre
40 Bowling Green Lane
Clerkenwell
London
EC1R 0NE

Tel: +44-(0)-7952 291 327
Email: halo@makepublic.uk
Skype: chrisclarkskype

 

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Leasehold: The Investors’ benefit and the Leaseholder’s pain – Part 5 and concluding comments

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This last article shows the investors’ concern over possible reputational damage to the pension fund and investors, which is what happens when leaseholder complaints arrive in rising numbers in Parliament.

It was unusual for a consultancy to point this out, so they must have been thinking at what point can leaseholders be squeezed for cash before they complain, and seen there were indeed likely limits. The builders and ground rent companies ignored this.

There is also an examination of how leasehold enfranchisement is seen as an inconvenience, that the leaseholder has to pay a high price to make good.

And for the last time, the quick reminder – CBRE set out 13 principal benefits of the ground rent asset class to investors.  Each point can be demonstrated to show the absolute perfection of the ‘I Win, You Lose’ investor v leaseholder mirror.  The analysis shows there is not one single aspect of ground rent investment that benefits the leaseholder.

CBRE Frontspiece

Report downloadable at: http://bit.ly/CBRE2013

To save reader fatigue, these are set out in two or three ‘benefits’ per blog article.

11. Reputational Risk

 

The sheer number of lessees an investor has to interact with means that investors will be exposed to reputational risk, often regardless of how successful they are operating as a freeholder.

 

Bad Publicity

When house leaseholders complain about leasehold escalation in droves on Facebook, in the press, and on TV, and the builders and ground rent companies get named for their excesses, this is bad publicity.

When ground rent companies’ unfair charges get debated in Parliament forcing the Government to consider changing the law, this is tragedy (for the investors)

When the GRIO:  Ground Rent Income Fund plc share price drops by 15% since April 2017, that is evidence that public campaigning is depressing the market.

But at present the builders, who rebuilt the leaseholding ecosystem from 2007 onwards, are not seeing their profits hit, and there is an overwhelming impression that they are using the ground rent companies and legal sectors as ring-fenced defences, and the fall guys in this current scandal.

(Taylor Wimpey have now thrown off their stock price difficulty arising from the ‘£130m assistance scheme’.)

It is the case, because we have achieved this already elsewhere, that if pension funds interests in aggressive leasehold contract risk being publicly exposed, they are very likely to divest quickly.

 To get an idea of how dominant complaints about housebuilders are, simply search Google using this textstring:

“name of builder” + leasehold + scandal

i.e., “taylor wimpey” + leasehold + scandal

12. Right of First Refusal

Lessees must be offered the right of first refusal of the freehold/headlease before it is sold in the open market.

 

House Leaseholders denied right

Due to a peculiarity in the law, house leaseholders do not have automatic right of refusal, even when they have been actively approaching the housebuilder. 

Lease describe this as follows:  “…the right of first refusal under the Landlord and Tenant Act 1987 only applies to buildings containing flats.”

https://www.lease-advice.org/faq/does-the-right-of-first-refusal-rfr-apply-to-houses/

It is certain that after 2 years the new homeowner’s lease will have been transferred to a ground rent company.

[Justin] Madders said another constituent was told by Taylor Wimpey that they would be given first refusal on the purchase of the freehold, but it was then sold on without their knowledge or approval….  “It can only be described as a racket by the country’s biggest developers,” he added.”

Source:  The Guardian – 20th Dec 2016  – Patrick Collinson  – Housebuilders must halt leasehold sale of new houses, says minister.  Government raises possibility of compensation for those already affected

https://www.theguardian.com/money/2016/dec/20/housebuilders-must-halt-leasehold-sales-of-houses-compensation

13. Lease Extensions and Enfranchisement

A leaseholder may seek to extend, or as a group of leaseholders collectively enfranchise, their leases. The freeholder can therefore potentially lose the ground rent income, albeit in return for a capital sum.

 

Denying a ground rent company their freehold income is expensive.

For a ground rent company over 20-30 years, there are considerable earnings to be easily had from a leaseholder.  Therefore if a ground rent company is pushed to sell it, they make it as expensive as possible.  Sometimes, with attendant publicity, solicitor’s assistance, and writing to your MP may result in a lower figure.  The biggest reductions seen to date is 50% off the original fee plus landlord legal fees.

Even so, as it can be seen here, the leaseholder’s pain at being forced to pay up is seen as merely a minor disadvantage to the ground rent industry.

Lindsay… bought a house from developers Taylor Wimpey.  The company did ask Lindsay if she wanted to buy her freehold – for £2,600. She declined because she was on maternity leave and felt financially it was not possible.  Two years later she asked about buying it but found it was now £32,000.  “I rang them and said, ‘I’d like to buy it now.’ And they said, ‘It’s not for sale – there’s a private investor who owns it.

Note:  This case was unusual, as as Taylor Wimpey complainants univerally spoke of the builder evading the ‘buy lease’ question.

Source:  BBC – 2nd Feb 2017 – Victoria Derbyshire programme

http://www.bbc.co.uk/news/business-38827661

 

_________________

In conclusion, it is exactly the problem demands leaseholders complain about the most, that make these leases so attractive to the Ground Rent companies, and their partner pension funds, and high net worth individuals.

The entire industry (if it can be called this) is built on a single freeholder leaning Property Act 1925, with the right to legal forfeit under Section 146. 

If this were to be repealed, as it has everywhere else around the world apart from England, Wales, and parts of New Zealand, an entire value destroying money-extracting ecosystem and all of the highly undesirable practices it has given rise to, will be expunged from modern society, to the great benefit of millions of English and Welsh citizens, and not just the leaseholders of the new build houses caught since 2007.

_________________

Link to previous article

The purpose of this blog post is to provide information about a new campaign group, HALO, or Houseowners Against Leasehold OppressionIt is being set up and run by a campaign steering group whose members are themselves victims of leaseholder oppression, with campaign facilitation managed by an experienced campaigning business called Make Public.  We seek to replicate the styles and persuasive voices of the successful national WASPI and Equitable Life EMAG campaigning groups.

Find out more and join us.  Visit:

and we’ll keep you fully informed.  Our first action when several hundred signups have come in will be to advertise to bring the HALO: Steering Group together, then open up the membership site and provide you with the campaign strategy all parties will work to.

This page and the Facebook page are being updated.  Look out for further information on or before 9th November 2017.

Time to fight back!

Chris Clark

HALO – Houseowners Against Leasehold Oppression and Make Public

COPYRIGHT © 2017 – HALO – HOUSEOWNERS AGAINST LEASEHOLD OPPRESSION

 

Chris Clark
HALO/Make Public

 

Chris Clark F.IDM, MBA
Chief Executive
HALO: Houseowners Against Leasehold Oppression
The Finsbury Business Centre
40 Bowling Green Lane
Clerkenwell
London
EC1R 0NE

Tel: +44-(0)-7952 291 327
Email: halo@makepublic.uk
Skype: chrisclarkskype

 

Leasehold: The Investors’ benefit and the Leaseholder’s pain – Part 4

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The fourth article describes how investor returns are increased through using ‘premiums’ which translate to heavy demands for cash for buying a freehold off the ground rent company.  

It also provides an explanation as to why builders feel compelled to pass their portfolios, your leases, to a ground rent company as quickly as possible.

Quick reminder – CBRE set out 13 principal benefits of the ground rent asset class to investors.  Each point can be demonstrated to show the absolute perfection of the ‘I Win, You Lose’ investor v leaseholder mirror.  The analysis shows there is not one single aspect of ground rent investment that benefits the leaseholder.

CBRE Frontspiece

Report downloadable at: http://bit.ly/CBRE2013

To save reader fatigue, these are set out in two or three ‘benefits’ per blog article.

7. Premiums

 

CBRE said:

Residential ground rents can often generate significant capital sums from lease extensions and enfranchisement premiums, albeit in some cases with a reduction in ground rent receipts due to statutory provisions.

 

Burdens

 

It is difficult to capture the feelings of a household whom having discovered a builder has secretly sold their leasehold on to a ground rent company, then spending a sum of money to enquire about buying the freehold a builder has already suggested a figure for, to then find the freehold figure has quintupled in price.  Plus you have to pay the ground rent company’s ‘reasonable costs’ and valuation fees as well.

Ground rent companies are also far better placed than builders to create and manage cash payments from the leaseholder, and also able to devise complicated ‘extras’ that you will have read about so much in the press.

It is rather easier to capture the feelings of the large company pension department with a deficit problem, who blissfully invests in the ground rent scheme after reading about the comfort of ‘premiums’ such as ‘enfranchisement’ as a consequence of reading the glossy brochure.

And remember, it appears to us highly likely that the builders’ own in-deficit defined benefits pension schemes are also invested in leasehold via a back door after the sale event.

“In 2014 Taylor Wimpey sold the freehold of his [Ian Thomson’s] home to a firm called Adriatic, which is now asking £44,000 for the freehold. “This is a sum we can’t afford,” said Mr Thomson. “Taylor Wimpey told us it was the salesperson’s fault and that she had left, so it wasn’t their problem.”

The company refused to explain why customers were routinely told that they could buy their freehold at a later date when it was actually the company’s strategy to sell the freeholds to investment companies.”

Source:  Daily Telegraph – ‘Taylor Wimpey sold our freehold – it will cost £40k to buy it back’

http://www.telegraph.co.uk/money/consumer-affairs/taylor-wimpey-sold-freehold-will-cost-40k-buy-back/

Disadvantages

 

What are the pitfalls to investors for investing in your leasehold contract?  On balance, very little.

 

8. Disaggregation

 

CBRE said:

The investor’s ownership is spread over thousands of units with the resultant management, legal and cost implications.

 

Managing Leasehold is Complicated

 

In the early days this required large IT expense to build the workflow-based IT systems to manage the variables involved in the contracts.

However today, the IT investment is much lower, making the admin support easier for smaller ground rent companies to get in on the act.

It is therefore safe to assume, with pension departments more and more behaving like drug addicts, the market is going to get more and more avaricious without being checked.

 

9. Management

 

CBRE said:

Management of large ground rent portfolios is complex. Significant IT expenditure is necessary to optimally manage portfolios and maximise returns. There is arguably a shortage of independent agents who are able to undertake portfolio administration such as ground rent collection.

 

Collection

This was true, but no more.  The IT investing needed is falling in cost rapidly and more and smaller ground rent companies will be able to afford the IT to help collect rents and pay investors.

This is how Brookes MacDonald Group plc’s IT System for GRIO – Ground Rents Income Fund plc runs:

·         “Maintain the property information held within the GRIF plc Property Information System (PrISm), including facts such as timing of rent reviews, arrears, managing agent and other relevant information.”

·         “Assist with the quarterly dividend calculation using actual and forecast information”

·         “Preparation of financial information for quarterly fund updates”

So if you ever wondered about how efficient the ground rent company was at organising your fee payments and collections, this was how.  And all made possible by an outdated colonial-era law.

“As mentioned in the previous investor report, we continue to carefully monitor the ground rent market for doubling rents and new-build leasehold houses. Increased scrutiny of the market has, however, not weakened bidding for high-quality assets.”

Source:  Ground Rents Income Fund plc update 30 June 2017

http://www.groundrentsincomefund.com/wp-content/uploads/2017/10/GRIF-Update-June-17_2.pdf

Ground Rents Income Fund plc (GRIF) is a Real Estate Investment Trust (REIT), listed on The International Stock Exchange (TISE), formerly the Channel Islands Securities Exchange Authority Limited (CISEA) and traded on the SETSqx platform of the London Stock Exchange.  

The above was written AFTER lease doubling became a high profile scandal.

10. Portfolio Size

 

CBRE said:

Large portfolios are necessary to create the economies of scale which can generate optimal returns. Creating a portfolio of scale is both costly and can take a significant amount of time.

 

The driver for Secret Transfers

This explains the substantial effort and most careful use of legal workrounds builders employ to pass the leasehold properties into the hands of the ground rent companies as soon as possible.

It also strengthens the suspicion they are not financially uninvolved after the freeholds change hands.  Why sell off a source of income so quickly having taken the risk of public backlash to create it in the first place?

“Adriatic bought the freeholds on 24 of the 45 houses on our estate for £177,000, or £7,375 per property. We (Joanne and Mark Darbyshire) were not offered the chance to buy the freehold when the leases were sold; if we had been informed what would happen next we would have bought it.

“Adriatic now wants more than £40,000 in return for the freehold. This is completely unaffordable for us and many others. It also wants disproportionate amounts of money to do anything – from requesting a quote to buy the freehold (more than £100) to making any alterations. A neighbour has been told that there will be a £2,500 fee for permission to build a small extension.”

Source:  Daily Telegraph – ‘Taylor Wimpey sold our freehold – it will cost £40k to buy it back’

http://www.telegraph.co.uk/money/consumer-affairs/taylor-wimpey-sold-freehold-will-cost-40k-buy-back/

Link to next article

Link to previous article

The purpose of this blog post is to provide information about a new campaign group, HALO, or Houseowners Against Leasehold OppressionIt is being set up and run by a campaign steering group whose members are themselves victims of leaseholder oppression, with campaign facilitation managed by an experienced campaigning business called Make Public.  We seek to replicate the styles and persuasive voices of the successful national WASPI and Equitable Life EMAG campaigning groups.

Find out more and join us.  Visit:

and we’ll keep you fully informed.  Our first action when several hundred signups have come in will be to advertise to bring the HALO: Steering Group together, then open up the membership site and provide you with the campaign strategy all parties will work to.

This page and the Facebook page are being updated.  Look out for further information on or before 9th November 2017.

Time to fight back!

Chris Clark

HALO – Houseowners Against Leasehold Oppression and Make Public

COPYRIGHT © 2017 – HALO – HOUSEOWNERS AGAINST LEASEHOLD OPPRESSION

 

Chris Clark
HALO/Make Public

 

Chris Clark F.IDM, MBA
Chief Executive
HALO: Houseowners Against Leasehold Oppression
The Finsbury Business Centre
40 Bowling Green Lane
Clerkenwell
London
EC1R 0NE

Tel: +44-(0)-7952 291 327
Email: halo@makepublic.uk
Skype: chrisclarkskype

 

Leasehold: The Investors’ benefit and the Leaseholder’s pain – Part 3

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This third article describes the ability to create low volatility income with the possibility of increasing returns over time, and how this translates to the hard expenses leaseholders are forced to pay out on such things as adding an extension, changing a door, or even having a cat or dog.  

It capitalises on the huge sacrifices leaseholders make to pay their mortgages on time, and the leaseholder behaviour that creates to make sure the ground rent is paid as well, without disruption to the investors.

Quick reminder – CBRE set out 13 principal benefits of the ground rent asset class to investors.  Each point can be demonstrated to show the absolute perfection of the ‘I Win, You Lose’ investor v leaseholder mirror.  The analysis shows there is not one single aspect of ground rent investment that benefits the leaseholder.

CBRE Frontspiece

Report downloadable at: http://bit.ly/CBRE2013

To save reader fatigue, these are set out in two or three ‘benefits’ per blog article.

4. Ancillary Income

CBRE said:

Unlike traditional residential and commercial assets the return generated from the investment is not solely derived from rental income. ‘Soft income’ can be generated from notice fees, insurance premium commissions, service charge management and enfranchisement premiums.

 

Unwanted Outgoings

The ‘soft income’ referred to by CBRE are the hard expenses leaseholders are forced to pay on top of the increasing ground rent, such as permission to change something, licences for modifications, fees for answering questions, involvement of expensive solicitors to make amendments, and breathtakingly huge demands for freehold purchases shortly after first purchase.

See for charge schedule based on recorded instances:

https://makepublicblog.wordpress.com/2017/10/02/made-public-the-secret-ground-rent-company-price-list-why-pay-them-to-ask-how-much-they-will-charge-you/

As the ground rent companies improve their methods for demanding cash from trapped leaseholds, it is highly likely that the investors will pressurise the ground rent companies to increase both the rate and frequency of their charges.

The more the number, cost, and frequency of these unwanted expenses become, the more incentive there is for the investors to demand more.

“Unscrupulous and avaricious actors within the property industry are using sharp leasehold practices to line their own pockets and fleece householders.”

Source:  Paula Higgins –  Home Owners Alliance 

 

5. Minimal Income Erosion

CBRE said:

Minimal gross to net income deductions in comparison to the commercial and residential property sectors. The main cost involved in holding ground rent investments is the cost of ground rent collection and administering notices.

 

The ground rent business prides itself in ensuring its investors get most of what the leaseholder pays in fees

 

In business, you would pay for something useful, a mobile phone subscription lets you use the phone network, and the provider creates and maintains it.  If a company pays you a dividend, it is because you voluntarily bought shares in it.  More esoterically in business and intellectual property rights, you might pay for the right to use something essential for you and worth having.

But here, not only have the ground rent companies and their investors offered absolutely nothing of value, they boast to investors about how cheap it is to extract, increase, and forward your cash to their investors.  Overseas investors are cloaked as a number of legally opaque tax avoiding funds are based in Jersey and Guernsey. 

This is all only possible because of the Law of Property Act 1925, descended from colonial financial repression law, and uniquely in healthy and growing form in England and Wales in the 21st Century.

“…assets where the income generated is linked to growth in retail prices, [RPI Escalators] such as One Park West in Liverpool or Beetham Tower in Manchester, are particularly attractive as a number of investors see its fund as an “earning enhancing diversifier” away from index-linked gilts.”  (Note, whilst these are top end apartments, the principle applies exactly to leasehold houses too.)

Source:  Financial Times – Ground rent prices rise as investors chase yield – a comment by James Agar of Brook MacDonald Funds

https://www.ft.com/content/383316d2-470c-11e3-bdd2-00144feabdc0

6. Lack of Volatility

CBRE said:

Ground rent investments have historically remained relatively insulated from the market volatility that has affected both the residential and commercial investment markets over the last few years. Ground rents have been viewed as a safe haven by investors.

 

Paying the ground rent fees in good times and bad, backed up by forfeiture if unpaid

Few people have uninterrupted financial security over the long term.  A redundancy happens, a life event takes place, and bills may get skipped for a period.  But every attempt is made to pay a mortgage, else there is the risk of repossession.  There is employment protection insurance and a level of social support if things get really difficult.  Here, the worst case is that if the home were to be repossessed by the mortgage company and resold, you would get the balance. 

So the rational result is in good times and bad, people as a whole do their best to ensure the mortgage is paid regularly.  It is the same with ground rent, people will usually do their best to pay this.

This leads to the result described by CBRE that ground rents are insulated from the market volatility.  Leaseholders make the sacrifices, the investor gets peace of mind.

But there is a sting in the tail provided by the Property Act.  If the leaseholder gets into difficulties severe enough, then the freeholder can forfeit the property, and even the mortgage company loses out when this happens. This is why the claim ‘safe haven’ works so effectively for an investor. 

The forfeit is marketed to investors as an additional attraction of their investment.  Lease escalation to impossible levels increases the chances of a journey towards forfeit unless the ground rent company changes terms – if their investors let them – or the law is changed to ban leasehold.

“There is a burning hunger for change in this area [of leasehold] but the real question is whether or not there is the appetite within the industry and government to deal with the fallout.”

Source:  Lexology – Leasehold Houses in the Firing Line: What Next for Developers?

https://www.lexology.com/library/detail.aspx?g=22b8d8c5-2b37-4c07-babf-3f2eb11b8d47

Link to next article

Link to previous article

The purpose of this blog post is to provide information about a new campaign group, HALO, or Houseowners Against Leasehold OppressionIt is being set up and run by a campaign steering group whose members are themselves victims of leaseholder oppression, with campaign facilitation managed by an experienced campaigning business called Make Public.  We seek to replicate the styles and persuasive voices of the successful national WASPI and Equitable Life EMAG campaigning groups.

Find out more and join us.  Visit:

and we’ll keep you fully informed.  Our first action when several hundred signups have come in will be to advertise to bring the HALO: Steering Group together, then open up the membership site and provide you with the campaign strategy all parties will work to.

This page and the Facebook page are being updated.  Look out for further information on or before 9th October 2017.

Time to fight back!

Chris Clark

HALO – Houseowners Against Leasehold Oppression and Make Public

COPYRIGHT © 2017 – HALO – HOUSEOWNERS AGAINST LEASEHOLD OPPRESSION

 

Chris Clark
HALO/Make Public

 

Chris Clark F.IDM, MBA
Chief Executive
HALO: Houseowners Against Leasehold Oppression
The Finsbury Business Centre
40 Bowling Green Lane
Clerkenwell
London
EC1R 0NE

Tel: +44-(0)-7952 291 327
Email: halo@makepublic.uk
Skype: chrisclarkskype

 

Leasehold: The Investors’ benefit and the Leaseholder’s pain – Part 2

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In 2013 an uncopyrighted report published by CBRE and employed by their sales intermediaries, was used to sell the attractiveness of the ground rent market to investors and pension funds. 

Prior to this and later Redington, through their Asset Class publications did the same. Both publications are written to a very high standard indeed.  The CBRE report was referenced by Sir Peter Bottomley in Parliament on 20th December 2016.

CBRE set out 13 principal benefits of the ground rent asset class to investors.  Each point can be demonstrated to show the absolute perfection of the ‘I Win, You Lose’ investor v leaseholder mirror.  The analysis shows there is not one single aspect of ground rent investment that benefits the leaseholder.

CBRE Frontspiece

Report downloadable at: http://bit.ly/CBRE2013

To save reader fatigue, these are set out in two or three ‘benefits’ per blog article.

Benefits of Ground Rents to Pension Company Defined Benefit Schemes:

 

Problems caused for house leaseholders
1. Longevity of Income

CBRE said:

Modern residential long leases provide income streams of in excess of 125 years. Such terms are far in excess of those available in the wider property sector and financial markets.

Unwanted multigenerational commitment

There is little opportunity to renegotiate a lease even if the terms are unfair, and they become more unfair as the years go by, making the property not actually valueless, but valueless and still costing.

“When Clare Budgen bought her first house in Ellesmere Port in 2009 for £155,000 the last thing on her mind was the lease. Taylor Wimpey, the developer, arranged the lease on a 999-year basis, so what could the then 22-year-old possibly have had to worry about?”

Source:  The Guardian — The new-builds catching house buyers in a leasehold property trap: 

https://www.theguardian.com/money/2016/oct/29/new-builds-house-buyers-leasehold-property-trap

2. Income Security

CBRE said:

Ground rents are heavily collateralised. The underlying property value is often 30 to 50 times the value of the ground rent investment.

 

Income Security = Forced sale or forfeit of property

The principal protection to investors that gives this crack cocaine investing asset class to defined benefit pension departments, is the Law of Property Act 1925, Leasehold, which means the leased property must ultimately go back to the freeholder, and to ensure compliance, Section 146 of the law says you may be required to forfeit the property if the ground rent is not paid.  The ‘high quality’ investing surety comes from a Colonial-era law solely designed to act against the leaseholder.  Even the mortgage company loses its stake if a leasehold house is forfeited.

Companies create value to their shareholders by creating and patenting something that is worthwhile.  But today, freeholders use an update of an old colonial law system to create value to themselves and their investors through financially oppressing a population through a value destroying law offering nothing of use to the leaseholder.  Descendants of these people have brought leasehold housing back to England and Wales and are busy expanding it.

“The “right of re-entry” or “forfeiture right” is a landlord’s unilateral right to bring a lease to an end in the event of a breach by the tenant. If a lease is successfully forfeit then all interests created out of it will also come to an end, including those of any subtenants or mortgagees.”

Source:  BrookStreet des Roches – FORFEITURE: THE RIGHT OF RE-ENTRY

https://www.bsdr.com/publication/forfeiture-the-right-of-re-entry/

3. Liability Matching Provisions

CBRE said:

The review provisions of ground rents are considered attractive, often being based on indexation to RPI or a fixed uplift as opposed to reviews to market rents. Such mechanisms enable investors to match liabilities.

 

Fee Increase Provisions

An explanation first.  For a defined benefits pension scheme in deficit, trustees are very worried indeed about having to pay their pensioners more with indexing, and seeing their deficit increase because of very low investment returns. 

Ground rent companies offer these pension departments liability matching provisions, also known by the later LDI or Liability-Driven Investment(s), as these increase over time roughly in parallel with the company pension payment rises.  It is this almost unique ability coupled with the forfeit threat that makes them  the crack cocaine of pension investments for the large FTSE pension fund-challenged companies.

But, under the Property Act 1925, ground rent companies can uniquely do this, by pushing people towards lease escalation schemes, and then to offer ‘enhanced returns’, extracting leaseholder money through ridiculous licences, unfair fee demands, and pay-per-permission schemes that extend to colours of doors, or even having pets.

“Nigel Ashfield, who manages Time investment’s £160m Freehold Income Authorised fund, adds that ground rents provide a highly secure income stream.  Defaults are extremely rare, because if tenants do not pay up, they face the risk of losing their lease.”

Source:  Financial Times – Is ground rent investment built on solid foundations?  Institutional investors’ interest in ground leases are increasing

https://www.ft.com/content/affb1b8c-bbe4-11e2-a4b4-00144feab7de

 

Link to next article

Link to previous article

The purpose of this blog post is to provide information about a new campaign group, HALO, or Houseowners Against Leasehold OppressionIt is being set up and run by a campaign steering group whose members are themselves victims of leaseholder oppression, with campaign facilitation managed by an experienced campaigning business called Make Public.  We seek to replicate the styles and persuasive voices of the successful national WASPI and Equitable Life EMAG campaigning groups.

Find out more and join us.  Visit:

and we’ll keep you fully informed.  Our first action when several hundred signups have come in will be to advertise to bring the HALO: Steering Group together, then open up the membership site and provide you with the campaign strategy all parties will work to.

This page and the Facebook page are being updated.  Look out for further information on or before 9th October 2017.

Time to fight back!

Chris Clark

HALO – Houseowners Against Leasehold Oppression and Make Public

COPYRIGHT © 2017 – HALO – HOUSEOWNERS AGAINST LEASEHOLD OPPRESSION

 

Chris Clark
HALO/Make Public

 

Chris Clark F.IDM, MBA
Chief Executive
HALO: Houseowners Against Leasehold Oppression
The Finsbury Business Centre
40 Bowling Green Lane
Clerkenwell
London
EC1R 0NE

Tel: +44-(0)-7952 291 327
Email: halo@makepublic.uk
Skype: chrisclarkskype

 

Leasehold: The Investors’ benefit and the Leaseholder’s pain – Part 1

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Far too little attention has been given to the remarkably synchronised mirroring of the benefits to investors in leasehold with the pain caused by the ground rent industry to the leaseholders. 

Everything about house leasehold is based on an I Win, You Lose transaction, protected up by the colonial-era rooted Property Act 1925.  It is totally alien to businesses, where law-backed agreements are designed to help industry make profits providing goods and services people want.  It is not even a tax.  With a tax you have some idea of where it goes to benefit society.  But leasehold seems more like enabling a law-backed based cash extraction ecosystem available for anyone of a certain mind-type to simply buy or build or manage a leasehold property, to use the Property Act to demand money with menaces.  As with PPI, and with payday lending, it is normal to see an escalation of behavioral excesses unfolding here over a 7 to 10 year ramping, as the players and their pensions consultants competed with each other to find more innovative ways to extract money out of leaseholders. 

However, today a large proportion of FTSE 100 and FTSE companies have Defined Benefit Pension Schemes, many closed to new entrants, and in serious deficit.  They have discovered that the returns that can be made a new asset class based on ground rents, supported by leasehold, is giving them much better returns than traditional pension investments, and they have swooped on this.  If it was ever thought that pension trustees were principled people, today they appear to be busy catching up with the PPI and payday lender’s habits.  

So in a series of articles we are going to break down each element of the I Win, You Lose transaction.  However we are going to use this deconstruction based on a highly effective approach (for the investors) put together in 2013 by CBRE called: THE EVOLVING RESIDENTIAL GROUND RENT MARKET and used by their consultants to help pension departments set up these highly attractive ground rent investments.  We will give these another name:  Ground Rents:  The Crack Cocaine of Pension Scheme Investing.

This article overviews the ground rent ecosphere created by the Property Act 1925, and the legal right of forfeit under Section 146. The following articles (being written) covers each ground rent scheme benefit, which we then compare with the harm done to house leaseholders.  The mirrored symmetry is remarkable.  And completely legal.

Leasehold Comparison

This side by side analysis illustrates how the ground rent income scheme is set up for pension departments and investors, and illustrates the benefits of each perspective to the investors.  It is then contrasted with the way the financial demands flow through to the leaseholders, and shows how layered charges placed on top of the ground rent fee increases the return to the investor, with very little deduction of costs, and paid for exclusively by the leaseholder who is in a trapped contract which is to all intents and purposes without appeal.

The scheme only exists thanks to the peculiarly detrimental laws that act against the leaseholder.  Now abolished elsewhere, they are maintained only in England and Wales, and a few Colonial-era ‘Glasgow’ leases maintained in New Zealand, which also has an overheated housing market.

The analysis particularly concentrates on the effect of forfeit, which is the single mechanism used to financially guarantee to the investor, even over a mortgage company, a cash benefit if a leaseholder should go into such serious default that the home is forfeited and returned to the ground rent company at zero cost for resale at full market price.  It is this specific feature that gives the ground rent industry its very high investment safety ranking compared to other income investments such as bonds that return far less, and pays out very little if a company or government goes bankrupt.

The leasehold laws give rise to a unique ability to create and offer to a hidden army of secret investors via offshore funds, a sophisticated low risk low volatility high cash return asset class.  It is the crack cocaine of investments to trustees of large defined benefit pension schemes in deficit where the deficits are so bad that company managers and shareholders are concerned.  They are desperate to manage these deficits in the next 15 – 20 years.

The UK major housebuilders created the new leasehold house market from 2007, and given their enthusiasm to create these leases, then sell them to ground rent companies in the shortest possible time thereby illogically losing decades of future high value income, it is not reasonable to accept they do not somehow retain an interest in the leases after they have been transferred to the ground rent companies.  Taylor Wimpey have denied this.

The asset class is built in four parts:

  • The 1925 Property Act, Section 146 Notice for Forfeiture
  • Investors who take advantage of these unique set of colonial-era laws
  • Builders and their lawyers that wrote the escalating leases and created the house leasehold market in stark contrast to practices around the world including Scotland and Northern Ireland. Ground rent companies who are essentially sophisticated large-scale rent collectors, backed up by very efficient debt collection agencies, both very skilled at demanding monies backed up by the law.  A large wealthy law sector skilled in the creation of deceptive leases, and exploiting the current laws against the leaseholder at Tribunals and mediation, where settlements in leaseholder favour are infrequent but the law requires they must always pay the legal costs of the ground rent company.
  • The leaseholders, who are the unwilling providers of all of the cash to this highly efficient money collection machine, who’s product is so much in demand by pension departments, and for which we believe the large builders pension departments must somehow also be invested.

It is important to state for balance, that the nightmare of a forfeit to a leaseholder, is considered an attractive part of a ground rent investment.  The right to forfeit was an especial target when governments repealed similar property acts around the world including Scotland and Ireland.

It is our belief the builders, who employed extraordinary effort to create this market, may also secretly invest in the schemes through the cloaked investment practices offered by the ground rent companies offshore facilities.  We stand to be challenged on this assertion.

Furthermore, the continuing existence of this freeholder-leaning act, backed by forfeit, and frequent attempts by large freeholders to maintain opaque practices, avoid scrutiny, and lobby Government to remove all threats, gives rise to an operating ecosphere within all sorts of undesirable practices can and do arise, causing serious harm to leaseholders whilst maximise cash receipts for themselves.

So this analysis is written to show how the Property Act 1925 gives the exceptional advantage to the secret investors, and creates the exceptional harm to the leaseholders caught up in the escalating leasehold scandal.  It is analysed point by point from the investor perspective, then each point is reviewed to show how each investor benefit disproportionately harms the leaseholder. 

Link to next article

The purpose of this blog post is to provide information about a new campaign group, HALO, or Houseowners Against Leasehold OppressionIt is being set up and run by a campaign steering group whose members are themselves victims of leaseholder oppression, with campaign facilitation managed by an experienced campaigning business called Make Public.  We seek to replicate the styles and persuasive voices of the successful national WASPI and Equitable Life EMAG campaigning groups.

Find out more and join us.  Visit:

and we’ll keep you fully informed.  Our first action when several hundred signups have come in will be to advertise to bring the HALO: Steering Group together, then open up the membership site and provide you with the campaign strategy all parties will work to.

This page and the Facebook page are being updated.  Look out for further information on or before 9th October 2017.

Time to fight back!

Chris Clark

HALO – Houseowners Against Leasehold Oppression and Make Public

COPYRIGHT © 2017 – HALO – HOUSEOWNERS AGAINST LEASEHOLD OPPRESSION

 

Chris Clark
HALO/Make Public

 

Chris Clark F.IDM, MBA
Chief Executive
HALO: Houseowners Against Leasehold Oppression
The Finsbury Business Centre
40 Bowling Green Lane
Clerkenwell
London
EC1R 0NE

Tel: +44-(0)-7952 291 327
Email: halo@makepublic.uk
Skype: chrisclarkskype

 

Press briefing: Leasehold Scandal line of enquiry. Do builders continue to benefit in some way after a lease is sold to a ground rent company?

 

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Do builders continue to benefit in some way after a lease is sold to a ground rent company?

To the journalists who have faithfully been covering the horror of the House leasehold scandal.  Firstly, thank you for all you do to cast a spotlight on this indefensible industry created by our large builders, and administered ruthlessly by ground rent companies, be it a new house leasehold, or flat/apartment leases. It is your media exposure that has given voice to the many campaigners seriously worried about their homes.

Our purpose in writing to you to ask if you can publicly ask several questions the building industry needs to answer, is that based on our experience in pursuing hidden fund ownership elsewhere, it is striking to note there are a large number of occurrences of possible links between the ground rent companies and the mainstream builders, and their pension funds.  These appear long after a leasehold has been supposedly transferred by a building company to a ground rent company.

There is also a notable financial peculiarity in that the large builders seem to have gone out on a limb to both create these leases despite the known PR risk (we have evidence), then with 24 months or earlier, to sell them off to ground rent companies in preference to offering them to house leaseholders, when clearly the large majority of the revenue from each lease come in in the years following the sale to the ground rent company.

The common connection is nearly all of the companies originally offering the most aggressive terms are mainstream builders with defined benefit pension funds in sufficient deficit to concern both management and shareholders. We can also cite two mainstream builders with DB schemes in deficit, that who ran ground rent businesses before transfer, and one building society that also has a defined benefits pension scheme in deficit that has recently invested in a London apartment ground rent portfolio.

The evidence we have (we use the NYT IMVAIN verification standard) substantially passes the bar for asking focused questions to the builders, but does not as yet constitute a watertight case. This includes at this point nearly 500 screenshots, and 140 notes. Taylor Wimpey have denied any interest after a leasehold is sold on, but we have evidence to suggest they need to be firmly challenged on this. All builders have declined to appear in front of the All-Party Parliamentary Group on Leasehold Reform, and this is reminiscient of Capita’s refusal to discuss the Arch cru fund failure until we started publicly asking similar questions.

We believe it is important to note the builders created this new and toxic house leasehold market by themselves, and the ground rent companies and most favoured solicitors only willing collaborators.  In any redress scheme to leaseholders via a change in the law, or through Parliamentary or Campaigner pressure, it is only the builders who have the financial reserves and economic strength to undo what they created and financially carry the cost of converting these leases to freehold.

We list the seven most significant questions on our blog post here:

https://makepublicblog.wordpress.com/2017/09/22/unfair-escalating-house-lease-seven-questions-about-housebuilders-financial-connection-to-ground-rent-companies/

We would like to ask if you might be interested in taking some of these questions forward to the builders along with your own questions, and see how this might take the campaigners in general forward to seeing an end of this industry.

The campaign is shown on our website here: http://www.makepublic.uk/campaign-detail/18 and more related topics research is on our blog at: https://makepublicblog.wordpress.com/campaigns/

Who is HALO, and who is Chris Clark?

My name is Chris Clark, and I am business owner of Make Public, a campaign facilitation company (makepublic.uk), and have recently set up a campaign ‘HALO: Houseowners Against Leasehold Oppression’ to see what might be done to assist the lot of house leaseholders as distinct from leaseholders in general caught up in the escalating lease scandal.

I am also an investor in everything except property, and that includes not owning a house. Our campaigns as Make Public have focused on financial scandals (Arch cru, Arck LLP) and exposing offshore fund memberships and people in the networks. We have had success in uncovering secret Jersey, Guernsey, and Cypriot networks on another campaign. Our work has been covered in Transparency International this year.

We are happy to pass over our research, and have good investigation facilities that may assist other points you may have.

I look forward to hearing.

With kind regards

Chris Clark
HALO/Make Public

 

Chris Clark F.IDM, MBA
Chief Executive
HALO: Houseowners Against Leasehold Oppression
The Finsbury Business Centre
40 Bowling Green Lane
Clerkenwell
London
EC1R 0NE

Tel: +44-(0)-7952 291 327
Email: halo@makepublic.uk
Skype: chrisclarkskype