Why do we get more legal protection as consumers when we buy a cheap mobile phone for £10 a month than we do when we buy a flat for four million pounds?
Why is it so difficult to read and understand the terms of a lease?
Does anyone else find it odd that the leases which lay down the details for leasehold property ownership, the terms and regulations on how we can live in the property and the very important small print that can
have significant financial implications, are all purposefully written in a way meant to obscure their meaning?
In every other area of our consumer lives the laws protecting us are tightening up, culminating in the recent Consumer Rights Act 2015, as legislation looks to legally protect the consumer from unscrupulous business practices and see that they not tricked confused mislead or ripped off when signing a contract.
One of the few types of contracts being excluded from the draconian Consumer Rights Act 2015 is the lease of a property which seems odd. The Act states that the only contracts that are legally excluded from being protected by the Act are contract that relate to ‘the creation or transferal of property’.
Why is that?
Why is the contract, that involves the biggest and most important purchases of our lives, purposefully excluded from legislation that is designed to protect us from the crooks?
Let’s look at a real example of this.
Imagine you have bought a flat and you want to look at your lease to see how much your ground is, how much it will rise to and when, which should be a pretty straightforward thing to do surely?
All these details are contained in your lease so you settle down with a cup of tea and a copy of your lease and start to read.
It may firstly take you a few seconds to establish if you are the lessor, landlord, lessee or tenant. Once that is done you can proceed.
(The details below come from an actual lease which I had on my desk at the time of writing, I didn’t choose it because it was overly complicated it was just one that had been printed out, I’ve seen more complex ones than this)
So remember you are looking for how much your ground rent is, what it will increase to and when. Here is what the lease says:
Rent payable hereunder by the tenant
- “The rent shall be fixed for each of the following periods:
First period First 25 years
Second period 26th to 50th years
Third period 51st to 75th years
Fourth period 76th to 100th years
Fifth period 101th to 125th years”
So that is the timing for your ground rent schedule, a little convoluted but it isn’t impossible to comprehend.
So first bit done, now much is the rent? The lease continues to explain it for us.
“For the first period the rent shall be two hundred and fifty pounds per annum”
Crystal clear! That’s not difficult to follow at all! What’s all the fuss about? This lease reading business is a doddle!
What happens after the first 25 years though?
“For each subsequent period the rent shall be the value of the ‘current rent guide’ (which is defined below) on the last day of the previous period
- Initially the current rent guide shall be computed by the formula
250.00 x A
Where A is the most recently published value of the general index of retail prices complied before the 1st of June 1988
The said formula shall continue to be used notwithstanding that its name be changed or that it be published by a different department so long as the government for the time being continues to compile and publish it on substantially the same basis as the date hereof”
All you want to know is how much is your ground rent is going to increase by in the future. What is all this A over B nonsense?
It now looks a tad confusing but have no fear it looks like number 3 Is going to shed light on the whole issue.
“3. If in circumstances set out below the index used for calculating the current rent guide shall be changed it shall therefore be computed by the formula
R x C
Where R is the most recent value of the current rent guide at the date of the change of index:
C is the most recently published value of the new index
D is the value of the new index on the date of the change of that index.”
I hope that is now clear to you all, it’s as easy as RDC.
I know what you are all worrying about now though, I can worryingly hear you all asking the question collectively “What happens if Retail Prices are recalibrated?
Well don’t worry about it for a second as the lease makes it very clear what you need do!
“4. If the General Index of Retail Prices shall be recalibrated it shall be deemed to be a change of index for the purpose of foregoing paragraph”
If you are thinking that could possibly have been explained a little clearer then worry ye not, as the lease includes a rather helpful example.
If on the last day of October 1990, when the index stands at 425, the Department of Employment resets the Index to 100, the current rent guide will be
250.00 x 100 equals 58.82
so that immediately thereafter it will become
58.82 x C
where C is the current value of the (recalibrated) index”
Pretty clear I’m sure you will agree. You now know your ground rent timings, how much it will rise by per schedule and what will happen if the Retail Prices are changed or recalibrated.
Wait! good God man! What will we do if the Retails Price Index is cancelled? Like me, you probably wouldn’t be able to sleep tonight if we don’t find an answer to this burning question but once again the lease comes to our rescue.
“5. If the index currently being used for the purpose of computing the current rent guide shall cease, then both the Lessor and Lessee shall use the new index of the closing middle price of gold sovereigns of the weight and fineness set out in Schedule 1 of the Coinage Act 1971. The said closing middle price shall be the price quoted at, and published with the authority, the London Stock Exchange”
I can’t help feeling that the terms of the lease are a little slapdash as they do not explain how the ground rent uplift should be calculated if the London Stock Exchange is ever closed or if England were to sink into the sea or we are taken over by aliens from another planet who replace our current currency with monkey nuts but I’m afraid it’s all we have to go on.
What nonsense this all is. Why is it allowed to continue like it has? Why can’t leases and legal documents be protected by the same consumer laws that protect why we sign up for a loan? Why can’t they be written in clear understandable way that anyone can understand?
The average leaseholder would probably feel compelled to take some sort of legal and valuation advice on the above terms, and have to pay handsomely for the privilege, to feel secure in their decision to purchase the property.
A MORI poll published in May 2016 found that 21% of people paying for legal advice sought advice on issues surrounding property ownership (excluding conveyancing). That’s a good little earner for solicitors right there, how much do these obfuscated legal terms found in leases contribute to this figure?
We all seem happy to accept the fact that the lawyers we pay to write lease terms in legalese are the only people who can translate these terms back into English for us, for a fee. It’s ludicrous.
How would we all react if suddenly all mobile phone contracts were written in Klingon and we had to pay a Klingon expert £300 per hour to translate the contract into English for us? (With a small print caveat to say that “Although we have retained to translate this mobile phone contract from Klingon into English for you, we cannot be held financially accountable if in fact it turns out that our advice is in Betacrypt as we acted in good faith blah blah blah)
How much easier would it be for the leaseholder if the terms of the lease were written in a no-nonsense way designed to be understood by all? For example:
“1. The ground rent schedule for your property is as follows:
Your Ground rent is £250 per annum for the first 25 years of the lease. This increases every 25 years in line with the Retail Price Index.
If the Retail Price Index is recalibrated, then we will divide the new rate with the old rate to ensure that the ground rent increase is fair and proportional”
Imagine if all the terms of your lease were written in the same, clear manner and were written in such a way that everyone could understand their meaning and be able to make informed decisions as to property ownership and the small print that governs leasehold life.
One of those conspiracy theorists people would say that this is all done on purpose to ensure that flat owners don’t understand what they are signing up for and so get ripped off by predatory billionaire freeholders who use legalese to their financial advantage on a daily basis.
Of course, I am wearing a tin foil hat to protect my brain from these conspiracies and so I don’t subscribe to this view at all.
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