Is your house new or built since around 2006? Were the terms leasehold, not freehold, as is more usual?
Does the lease contain unfair cloaked ground rent clauses? Or has the lease been transferred to a ground rent company under unknown circumstances? Are you being billed for all manner of things you would not expect to be of any concern to the ground rent company?
The purpose of this blog post is to provide information about a new campaign group, HALO, or Houseowners Against Leasehold Oppression. It 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.
Since 2007, around 110,000 owners of new leasehold houses in England and Wales, but not the rest of the UK, have found themselves unexpectedly on the wrong end of a new kind of lease. It included difficult-to-uncover terms that permitted the ground rent to be increased, or doubled, at regular intervals, often of ten or fifteen years. The financial impact is severe. A ten-year doubler lease starting at £350 pa in 2007, would jump to £700 pa this year, to £1,400 pa by 2027, and to £11,200 pa from the 51st year.
This is an example of one of the toxic and cloaked doubler clauses, discovered by The Guardian recently:
‘Each review date the rent is to be increased to double the rent reserved before the relevant review date and the reserved reviewed rent will be payable from and including the relevant review date.’
At least thirteen specific complaints about these new leases have emerged, and we are listing five of the most concerning:
- Why were these houses sold on lease in the first place?
- The people caught out are mainly young home buyers
- On trying to sell a leasehold house that has an escalator lease, buyers’ solicitors warn buyers off
- Original builder’s quote for lease multiplied fourfold and more by ground rent company
- Leaseholders are held to ransom over vexatious charges for even small internal house changes, which has inspired the name of this campaign
At present there is pressure to change the law supported by Parliament to ensure new houses are in future built freehold. There are a number of legal cases underway that may succeed in getting the most harmful leases linked to Retail Price Index-related increases.
However, it is unclear whether the law will retrospectively cover the existing 110,000 leasehold houses. It is clearer that pursuing legal action may result in alleviation of the problem to an extent, but doesn’t stop the leases increasing. In particular, this does nothing to fix the rip-off fees ground rent companies charge for house improvements such as repainting a door, adding a conservatory or even, in one case, seeking permission to have pets.
What has not been discussed is that there is a significant minority of leasehold contracts that have been in place for more than six years and, under contract limitation rules, if problems are found with these agreements, legally leaseholders can no longer complain.
So who will speak for the 110,000, and the contract-limited left-behinds?
Whilst both initiatives should of course be fully supported and, at HALO: we will play our part here, there is very little that is being done to challenge the creators of the leases, the original mainstream building companies. In fact, despite public utterances to the contrary, we can show they and their shareholders are generally unworried, and think they are off the hook. We think this lack of focus on the builders is a mistake and will explain why.
Before continuing, a question that needs to be asked is: Why has the entire problem with house leases come about anyway? These leases form part of an investing asset class called illiquid assets, and they pay much higher than Government or Company bonds in this current low-interest era. They have four curious selling points.
- Firstly, the builders themselves created the house lease market from 2007 onwards.
- Second, the escalator leases cause the returns to investors to rise over time.
- Third, the much complained about ‘administration’ charges levied for changes increase the returns.
- Fourth, forfeiture of a house is seen as an investment benefit by the scheme promoters.
Investments in ground rent companies are made by FTSE 100 defined benefit (DB) pension scheme trustees, many of them struggling with large deficits. They include most of Britain’s major builders. This means the ground rent schemes have become the crack cocaine of safe investments to managers of large distressed or in deficit DB pension schemes.
Most of Britain’s large housebuilders have DB pension schemes in deficit. It is not at all clear to us whether their financial interest in leases that are sold to ground rent companies disappears at point of sale. Here are four cases of apparent conflict.
- Both Bellway and Persimmon ran ground rent companies for several years before transferring them to Adriatic Land. Both have DB schemes in deficit, and Adriatic Lend attract pension trust investors
- Nationwide Building Society’s DB pension scheme, also in deficit, invested £54m in leases held on a number of London leasehold apartments
- A Taylor Wimpey pensions consultancy hired by Taylor Wimpey Pensions in 2016 were promoting ground rents as an asset class from 2010 onwards
We argue that the builders’ responsibility for the design and introduction of the toxic house-lease market has not gone away with their selling leases en masse to ground rent companies, in the same way that tobacco companies could not ultimately evade being sued for their toxic products, or that European diesel car makers were required to compensate their customers after being found out over rogue emissions software. The main charge the UK’s large builders now face is an abuse of public trust, and this is most certainly not reduced by the legal niceties of trying to sell on their responsibilities, or by a six-year contract limitations law. They are £multibillion companies, (even the smallest, Countryside, was valued at £1.5bn in 2016) and hold absolute sway over the ground rent companies through size and cash reserves alone.
This is the campaign action plan Make Public are proposing to run. It will be a commercially managed campaign with accessible membership fees to leaseholders.
House leases bought in England and Wales on leasehold escalator contracts from 2007 onwards should be amended to freehold by UK house builders, at nil charge, or at a charge which is the equivalent of the difference between a leasehold house and a freehold house at the point of sale, which is about 1%.
There are five objectives.
- To run a membership-funded national campaign along the lines of the highly effective WASPI and EMAG (Equitable Life) campaigns, to be called HALO – Housebuyers against Leasehold Oppression.
- To campaign against the builders and continually highlight their abuse of public trust until such time as they agree to settle with the affected leaseholders, regardless of when the leases were actually signed.
- To work with the All-Party Parliamentary Group (APPG) for Leasehold, to highlight the unfairness inflicted by the builders on this group of leaseholders, and call for retrospective laws to return the leaseholders to the position they would have been in if their houses had been provided within the usual freehold arrangement.
- To seek the return of all cash paid over to ground rent companies, over and above ground rent compensated by the builders.
- To support and promote other campaign and legal groups seeking to get current lease terms improved, without compromising ultimate settlement by the house builders.
To bring together an energetic Membership Action Group, including a structured Steering Group comprising –
Chairperson, Campaign Spokesperson, Fundraiser, Treasurer and Admin, Historian and Librarian, and Programme Director
This group would be prepared to take on and win an outcome for the 110,000 affected leaseholders. Pricing per leaseholder will be accessible and probably under £45.00 per leasehold house per year. Make Public would cover the roles of Research Manager, Programme Director and back office organisation. Funding will initially be managed by ourselves and, at the earliest opportunity, this responsibility will be passed over to the Steering Group Treasurer. It is a condition of our role that we are separate from the campaign funding programme.
STEERING GROUP ACTIVITIES
The Steering Group’s action list will include:
- Create a list of campaigners’ questions
- Build the membership as quickly as possible to become a substantial force
- Add several of our own people (?) to investigate possible conflicts of interest with the builders, their pension companies, and the income generated from ground rents
- Get building company CEOs to attend a Select Committee to answer questions raised by campaigners. Circulate the results
- Organise or sponsor effective turnouts at new-build sites originated by housebuilders who issued vexatious leases, whether or not the sites are leasehold or freehold (based on the rationale: if this building site’s freehold, why isn’t ours?)
- Raise the issue of the left-behinds (those leaseholders where contracts were sold more than six years ago from today), and demand compensation
- Encourage regular writing to MPs to keep the scandal front of mind. Particularly useful letters will include the difficulties of selling affected houses, ground rent contract examples, outrageous ground rent company demands over trivial matters. We know this works.
- Call for the APPG to meet regularly and keep campaigners updated regarding legal moves.
- Have an effective newspaper communication programme to bring all developments to the mainstream press as they happen.
- Ensure the HALO Facebook and Twitter accounts are in use frequently to keep all leaseholders up to date with events.
Q & A
Q1 – How many members are expected to sign up?
A1 – Over time, we forecast between 6,000 and 15,000 members will be signed over 36 months from the 110,000 house leaseholders currently identified. This forecast is based on Make Public’s successful Arch cru Campaign, which had 1,600 members first time round, and 1,100 second time round; also on the Harlequin Campaign, with around 600 members signed; and on the larger memberships that the WASPI and EMAG Campaigns have achieved, though these were not run by us.
Q2 – Is Make Public a commercial organisation?
A2 – Yes. We provide research, outcomes campaign strategy, administration, and IT support to national campaign groups, and charge a monthly fee, milestone success fees, and a percentage of remaining campaign balances at campaign completion. These fees are designed to enable very affordable membership rates and robust effective campaigns. We agree a fee and a programme with the Campaign Steering Group, and they agree our invoices. The contract includes severance terms.
Q3 – Why do you believe campaigners should target the major housebuilders and not solicitors, conveyancers, ground rent companies, or estate agents?
A3 – We believe all affected leaseholders should seek any remedy going, and swiftly, and we warmly support all other activity taking place. ‘Better together’ maximises the pressure. We think the best deals obtainable from action against solicitors and conveyancers where failure to advise the buyer about the lease escalation issue is proven, will likely result in lump sum payments to offset future demands and reduction in house value, but doesn’t clear the original problem.
Actions against ground rent companies that succeed, which by observation, is usually done on an estate-by-estate basis, results in terms being softened, for example, lease doubler terms being scaled back to RPI only. This reduces future fees a lot, but they still bite, and this does not rid the leaseholder of the ground rent company’s vexatious charges on top.
But firstly the builders have the financial capacity to repay ALL 110,000 trapped house leaseholders, and secondly, they have the economic power to direct ground rent companies to vary terms, which they are already using to good effect.
Finally, we have clear evidence and four examples to show that at least three builders and one mortgage company may continue to have an interest in the leases in some way after they have been sold, and our first action in this campaign will to call for a Parliamentary Select Committee to request the builders and their pension scheme trustees attend hearings to be specifically asked about their pension schemes and possible ongoing connections with the ground rent companies. We will be happy to provide around 17 questions on this.
Having said this, we do re-iterate that affected leaseholders should be contacting reputable legal sources for advice and action now, as we have evidence that the 6 year limitation on contracts is causing around 10,000 leaseholders per year to go beyond the time for legal action.
Q4 – How do we know if this Campaign will work for us?
A4 – There is no guarantee in life. If you take no action to defend your interests, than nothing will happen to improve things. If you focus firmly on an outcome and campaign persistently to win it, even if it takes five or ten years, there is a good chance you will get what you want, or something similar to it. This has been our experience to date.
Q5 – What campaigns has Make Public been involved with to date?
A5 – Here are some examples, showing the outcomes of campaigning teams of varying sizes which we helped to bring together and then facilitate:
- Arck LLC Fund crash – 200 people (campaign won)
- Arch cru Fund crash – 1,600 people (campaign won)
- Link for Freedom working alongside National Council for Iranian Resistance and the Iranian opposition to free Iranian opposition prisoners in Baghdad – 3,000 people (campaign progress: all 3,000 people brought out in September 2016, 15 to the UK)
- Black Cap Pub – 3-5,000 people (campaign progress: pub sale to undesirable buyers prevented, two unwanted leaseholders forced to retire)
Q6 – How do I join?
A6 – If, at this point, you decide to sign up on one of two ways:
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 25th September 2017.
Time to fight back!
HALO – Houseowners Against Leasehold Oppression and Make Public