Last week Taylor Wimpey announced it has put £130m on one side to convert all the houses it sold with ground rents that doubled every ten years into ground rents that are linked instead to grow in line with the Retail Price Index (RPI).
Later that day Peter Redfern, the Chief Executive, took part in a ‘Q1 2017 Earnings Conference Call’ to explain Taylor Wimpey’s financial statement and its actions to rectify the leasehold houses scandal it created and answer any questions the participating financial analysts had.
On examination of these statements I have some serious questions that need to be addressed by Taylor Wimpey. On the one hand it could be said that Taylor Wimpey did not need to offer this and it is being decent because it ‘feels it’s the fair thing to do’ and I sincerely hope that is true.
However, having worked in the leasehold sector for the last 10 years, I have become very wary about deals that look ‘too good to be true’ and I am suspicious of this offer as I find many of the comments made by Taylor Wimpey ring serious alarm bells in my head.
Mr Redfern made this statement:
“What we’ve announced today is that we will do a Deed of Variation for those customers which requires a negotiation between us and the freeholder which we’re undertaking on the customers’ behalf.”
We must wonder why Taylor Wimpey took this action, although it is clearly the first step in the right direction, it is not what its clients asked it to do nor do they want it.
Not a single person I have spoken to wants to move from a doubling ground rent to a slightly less onerous ground rent linked to RPI with all the same leasehold clauses and unfair payments to the freeholder for pointless licences and permissions.
What the clients of Taylor Wimpey want is to be able to purchase the freehold of their homes and free themselves from the spider’s web of leasehold. This is a legal right they have.
Mr Redfern went on to say:
“We’re not releasing a number and therefore, a cost for lease of the actual provision, it includes the costs of the process and we think it is calculated on a very prudent basis.”
So it refuses to release the number of leasehold houses affected in this, nor how much it will be paying the freeholders in compensation. This seems a very strange state of affairs and not one that will fill any leaseholders with confidence.
This is a secret deal being done between Taylor Wimpey and the freeholders, the details of which are hidden. Was it not this very same secret deal originally done between them both that meant the leaseholders found themselves trapped in this leasehold hell?
They say these terms were “calculated on a very prudent basis.” Prudent for whom? As we know, many freeholders were asking leaseholders for in excess of £40,000 to buy their freehold if the ground rent doubled every ten years. It seems Taylor Wimpey has found a way to force the freeholders to accept much more modest figures for this deed of variation, but it refuses to share this information. Why?
Without any doubt whatsoever, the freeholders would only readily agree to this unorthodox suggestion if there was something in it for them. What is that something? They don’t need the cash; they need the long-term investment that is your home.
Surely a better option was to use this ability to force the freeholders to accept a more reasonable figure and then facilitate the leaseholders affected to be able to buy their freeholds, as that is what they want?
So that raises the question who does this deal on the table really benefit, the freeholders or the leaseholders?
It would benefit freeholders is if the ground rent in these doubling terms were to double to the first increase as part of this deal. I have seen this on every deal of this type I have seen already, which means the ground rent would be £590 pa linked to RPI.
If this is part of the deal they are suggesting it means each and every house would now have an onerous ground rent on their property, forever! The freeholders will retain their profit as they collect this ground rent as well fees for licences and permissions.
Leaseholders who then plan to move straight on to buy their freeholds from the freeholder once this deed of variation had been carried out would find themselves back in the position they are now in that of trying to negotiate to buy it with an onerous ground rent clause and it will cost them many thousands of pounds to do it. They will have to pay the same two sets of legal fees and may have to go to the Tribunal to force the freeholders to negotiate fairly on the cost of doing all this.
The leaseholders may find themselves in only a slightly better position than they are in now whilst the freeholders would be very happy having been paid twice for their freehold and Taylor Wimpey would be blameless from a PR standpoint.
This raises another serious question, Mr Redfern continued:
“The customers themselves have legal rights and so there are other ways at arriving at a valuation. So we’re not sort of — just got 1 lever to pull with those freeholder conversations”.
The customers have all THE legal rights, whereas Taylor Wimpey have no legal rights whatsoever to negotiate this on behalf of the leaseholders. Therefore, these negotiations will be informal negotiations, which means all leaseholders will have to step outside the legal protection they have buying their freeholds under the statutory route.
An informal deal is a ‘take it or leave it’ deal as there is no legal mechanism to remove any clauses that seem onerous. For example, we have seen deals of this nature before where there is a clause inserted that states that the person signing this deal cannot proceed to buy their freehold for a certain period of time. If that were the case here, you have no legal mechanism to remove it.
The same would be true if the terms of the deed of variation states your ground rent will double firstly, you have no legal mechanism to remove it before you sign.
There could be other clauses included in this deal like a time restriction on when you can then proceed to buy your freehold, a clause that could indemnify the developer against any future litigation or even non-disclosure agreements.
I have no idea if these types of terms will be included in the deed of variation at all, I include the various scenarios I regularly see in these deals simply to illustrate just how vulnerable leaseholders are entering into this kind of informal deal outside of the legal protections of offered by statutory freehold purchases.
One thing is certain though. Part of the deal will not include the removal of the huge fees leaseholders will have to pay for the permissions and licences that are included in their current leases.
Another worrying thing here is that Taylor Wimpey is only offering this deed of variation to customers who bought their leasehold houses from them directly, whereas the people who bought these houses from the original purchaser are excluded from this deal.
That does not seem fair at all. These houses still have the same unfair ground rents and terms as those who bought directly from Taylor Wimpey. If a car make was recalled because it had a certain fault, the car manufacturer would recall all the cars not just those bought directly from the manufacturer.
Even more worrying about this unsolicited deal being offered is that it infers a tacit agreement by all those who take up this offer, that leasehold houses with ground rents linked to RPI as somewhat acceptable and would possibly mean any future litigation against them would not be possible.
It also means that when those who accept this deed of variation will have nothing to complain about nor any recourse against Taylor Wimpey when they try to but their freeholds at a later date.
If this deal is accepted, the freeholder could be left sitting pretty with their long term investments and a nice compensation pay off from Taylor Wimpey. Taylor Wimpey get to walk away from the whole thing with its head held high and any chances of future litigation receding.
As ever, it’s the leaseholders left in a position that is little better than the original position they were placed in by these onerous lease clauses which we written and put in place by the developer to earn extra profit.
Everyone wins except the leaseholders and this is the very story told over the last few hundred years in the history of the leasehold system in this country.
It would be tedious for me to pick through every single point in Taylor Wimpey’s statement. You all now know how this works and what you all went through. That said there are some other worrying noises that could indicate intent and what the developer is focusing on.
Mr Redfern said:
“We haven’t had a single legal claim, including on these doubling ground rent provisions. Because people did have independent legal advice.”
This ignores the fact that the ‘independent’ legal advice was obtained from named solicitors recommended by the developers themselves for reduced fees and a speeded up service. It also ignores that hefty discounts were offered for ‘quick sales’ by the developers.
It also ignores the fact that since this leasehold house scandal erupted, Taylor Wimpey has simply told everyone to sue their conveyancing solicitor, thus neatly deflecting their blame in all this.
Mr Redfern then said:
“The contract (the lease) is very clear….. this isn’t a case and we might feel differently about it if the lease terms were hidden, sort of split between 3 clauses and really difficult to understand. They’re not, they’re very straightforward.”
These leases are as complex as we have ever seen and the vast majority of ground rent clauses are exactly split into three sections meaning for most people it is impossible to glance at what their ground rent is and when it increases. I have been sent hundreds of pleas from people asking me to try and identify just what their ground rent is and how much it increases.
He then says:
When we look at RPI leases and the sale of leases on houses historically, people knew they were buying a leasehold house.
Most did, but at point of sale they were told by Taylor Wimpey salespeople that they could buy the freehold of their homes for a few thousand after two years. This disarmed many of the purchasers who would otherwise been on full alert regarding the detail of the leasehold houses who mistakenly believed that the freehold would be theirs for a modest fee so why worry?
The freeholds were then sold to professional ground rent investors without Taylor Wimpey’s leaseholders being informed or consulted about it, nor offered a chance to purchase first. At that point the terms of the leasehold houses became important to everyone, but by then it was too late.
Does this professional spin put on the current leasehold house scandal and Taylor Wimpey’s role in it make us feel more confident or less confident in their role in this cloudy informal deed of variation being offered?
As I mentioned at the start of this examination we hope with every fibre of our being that this offer is genuine and will help those most affected by this scandal but would urge extreme caution before rushing into any informal deal made between Taylor Wimpey, the creators of your current situation and the professional freeholders who are currently benefitting from the deal done with your house builder.
Until I have the details of the deal being offered I cannot possibly advise fully on but experience has taught me to hope for the best and plan for the worst in all leasehold matters.
A much better deal would be for Taylor Wimpey to help you all to buy your freehold under the statutory process created to offer leaseholders protection under law. This for me is the only acceptable option and Taylor Wimpey should be asked why this is not an option on the table.
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