New Build Leasehold Trap

Friday 18 November 2016

Newly built homes are being left unsaleable after catching house buyers in a leasehold property trap, with owners being asked to fork out five figure sums for freeholds.

With a 999-year long lease and marketing spiel branding them "virtually freehold", newbuild properties are becoming increasingly attractive to buyers. However, homeowners are later finding the freehold to their property has been sold onto equity management and administration companies who are driving up the price and are becoming prohibitively expensive for them to buy.

According to government figures, around 6,000 new houses were sold as leasehold last year with Persimmon, Taylor Wimpey and Bellway, who now regularly sell estate houses as leasehold.

Part of the trap comes from the escalation in ground rent. Initially, it looks affordable, the developer gives the buyer a set ground rent with the contract stipulating this will double every 10-25 years. On the face of it this doesn’t seem too unreasonable, however if the ground rent clause was £250 a year, doubling every 25 years for 999 years, the sum due for the final 25 years of the lease would reach £68,719,476,736,000.

For the company that buys the freehold, this alone will provide a vast income.

Although homeowners are given the opportunity to purchase the freehold, this is not available at the outset. The valuation of the freehold includes compensation to the freeholder for loss of future ground rent, amounting to 999 years of future income, or in monetary terms, in excess of £30,000.  

Both Persimmon’s Agusta Park development in Yeovil, Somerset and Taylor Wimpey’s Dale Moor View development in Rossendale, Lancashire are made up of two-, three- and four-bedroom homes, all of which are leasehold. Neither offer prominent mention of leaseholds or ground rents on their websites or in their brochures and potential buyers allege they are not told about the leasehold until late in the process.

Justin Madders, MP for Ellesmere Port and Neston has commented, calling for a ban on leaseholds for estates of houses. “It is clear this system is being abused to drive huge profits at ordinary 'homeowners’ expense. There is no need for there to be leasehold properties, particularly those on an estate where the properties are mainly detached houses. 

“They need to be banned – it may be a convenient way for developers to get extra profit from their building work, but once they get in the hands of these private equity companies the profit motive overrides any considerations that there are real people living in their homes, who are being asked to stump up eye-watering sums.”