Everyone had the opportunity to submit their evidence to the Select Committee.
Clive Betts states “we had so much evidence, more than any other inquiry we have EVER done”
Session 1 – 5th November 2018
Evidence given by Sir Peter Bottomley MP, All-Party Parliamentary Group on Leasehold Reform, Jim Fitzpatrick MP, All-Party Parliamentary Group on Leasehold Reform, Martin Boyd, Chair of Trustees, Leasehold Knowledge Partnership Jo Darbyshire, National Leasehold Campaign, Katie Kendrick, National Leasehold Campaign, Shula Rich, Director, Federation of Private Residents’ Associations
Session 2 – 19th November 2018
Evidence given by Jason Honeyman, Chief Executive, Bellway, David Jenkinson, Group Managing Director and Main Board Director, Persimmon, and Jennie Daly, Group Operations Director, Taylor Wimpey; Richard Silva, Executive Director, Long Harbour, Mick Platt, Wallace Partnership Group Ltd, John Dyer, Director, Savills, and Chair of Residential Management Committee, British Property Federation, and Dr Nigel Glen, Chief Executive Officer, Association of Residential Managing Agents.
CHAIR SAYS TAYLOR WIMPEY WERE EMBARRASSED INTO ABANDONING SELLING HOUSES AS LEASEHOLD.
Chair: We still have not had an explanation of what you collect ground rent for. What do you give to the householder in return for this money you are taking from them?
Jennie Daly: In respect of leasehold houses, that is a fair question. It is one of the reasons that, when these matters came to our attention in autumn 2016, we made a very quick decision to convert the homes that we sell to freehold.
Chair: You do not think you are giving them anything, basically.
Jennie Daly: We believe that they are unnecessary for leasehold houses in the majority of circumstances.
Chair: You were embarrassed into abandoning them, then, because you could not justify them.
David Jenkinson: The problem is that there is no real definition of what an onerous ground rent is. If you look at the definitions, there is not really any definition of what onerous is or of what new build is. That has led to a bit of confusion around the numbers and the scale of the problem. That confusion has led to a bit of confusion for the customer. My own view of what an onerous ground rent would be is one that materially affects the customer’s ability to sell or to dispose of their home. Personally, I am not aware of any Persimmon leases where that is the case. I am not really sure where the definition comes from.
PERSIMMONS DO NOT SELL THE FREEHOLD’S ONTO 3RD PARTIES SINCE 2014…
Persimmon: We identified a problem mainly with event charges back in 2014, and the company made the decision to not dispose of any ground rents to any third party. We have not made any disposals since 2014. We held them within the business, to ensure our customers got treated fairly to do with them.
Once it became clear after that, we also wrote to all our customers in July 2017 and offered them a right to buy. For ground rents that had materialised since 2014, we offered each customer an opportunity to buy the individual ground rent after two years. That purchase was going to be at the lesser of 25 times the ground rent or the market value of the rent at the time. Interestingly, not that many people have taken up that offer. Only 160 people have taken that offer up. Once they knew they could buy that for a sum that equates to roughly 0.5% to 1.5% of the value of the property, they did not want to take it up. They just wanted to know the comfort of it.
Secondly, we have controlled the event charges in there, so there can never be more than £250 for a major extension. Minor issues are free and structurals are £75. We also put these clauses into future leases, to protect not just our current customers, but the ones beyond the first sale.
Thirdly, we reviewed all the leases that we had, to see if there were any that we considered to be onerous leases. We identified 60 potential leases where we had a problem, wrote to our customers and changed their leases to terms that were acceptable at no cost to them.
Mr Dhesi MP: Taylor Wimpey seems to be ahead of the curve on this particular aspect. Gentlemen, in terms of Bellway and Persimmon, do you have any similar plans to introduce such compensation schemes?
David Jenkinson: “Ahead of the curve” is not quite the right line. It is behind the curve, almost, because we are not in that position. We did not have the leases, exactly the same as them. We were not in the same position as they were, so we did not have to carry out the same actions. We did not rest on our merits. We noted back in 2014 that there was an issue with event charges. Therefore, we did not sell the freeholds. They were kept by us. Therefore, third parties were not able to charge the amounts that have caused so much concern.
We have not just done that. We have gone much further than that. We have introduced a right to buy to our customers, so if they want to buy that freehold they can buy it off us at the lesser of market value or 25 times.
Mr Dhesi: What other compensation schemes are you looking to introduce?
Jason Honeyman: We do not have any onerous leases, so we have not had the level of complaint that Taylor Wimpey has. We just do not have that volume of complaints coming through our business. All our leases are perfectly marketable, as they would be on an apartment scheme. I just do not have that problem.
APPARENTLY THEY DID IT FOR THEIR CUSTOMERS….
Persimmon: We had some doubling ground rents and it is important to understand how that came about. It was to do with customers wanting certainty on what they were going to pay in the future, but they are capped, so the actual amount of money works out the same as if it was RPI, or as near as could be expected.
ONEROUS ? NOT ONEROUS? WHAT IS ONEROUS?
Chair: Very briefly, you are saying that you do not have onerous ground rent arrangements because they are linked to RPI. You are all saying, if ground rent increases are linked to RPI, they are not onerous. That is your view.
David Jenkinson: There is no definition. It depends where your starting point is with RPI. If a £10,000 ground rent was RPI linked, it would probably affect the value of the house if it was £100,000. I am saying, to be clear, it is anything that materially affects the marketability of that house.
Jason Honeyman: If you have a modest ground rent with a rent review at 10 years on RPI, it is perfectly acceptable.
Jennie Daly: My view would be that there are very specific legal and financial accounting definitions of “onerous”, which I am not qualified to advise the Committee on. I can say that the 10-year doubling ground rent lease that Taylor Wimpey introduced is not consistent with our high standards of customer service. We felt uncomfortable and wished to work on behalf of our customers to resolve the matter.
Chair: Linked to RPI, it is not onerous. That is your definition. It is not onerous if you have a ground rent increase linked to RPI.
Jennie Daly: It is a combination of factors. As I have said, I am not legally qualified to advise members on the definition of what is onerous.
Chair: You can tell the Committee whether you think your arrangements are onerous or not.
Jennie Daly: The Government’s work on—
Chair: I am asking for your view, not the Government’s view.
Jennie Daly: My view is that “onerous” has some very specific definitions in legal and financial terms. We are uncomfortable about the doubling ground rent that we introduced and we are working to resolve that.
Chair: Linked to RPI, your ground rent rates are not onerous.
Jennie Daly: The RPI form of lease that we are returning our customers to, I am satisfied, is marketable, saleable and affordable.
Chair: It is not onerous.
Jennie Daly: It is not onerous.
Chair: Does that go for your rates as well?
David Jenkinson: As I have said previously, there is no definition of what an onerous ground lease is. You have asked me what I think it is. My personal view is that, if it is a lease that affects the marketability of the house, it is onerous.
Jason Honeyman: I am satisfied that our lease is CML compliant. It is satisfactory for purchasers and it is fully marketable.
BACK TO THE ISSUE OF ONEROUS….
Bob Blackman: I am going to come back on this issue of what the definition of “onerous” is, because, Mr Jenkinson, as you are quite rightly saying, it is whether it is marketable or not. Would you accept that marketability is dependent on the lenders being willing to lend money for the purchase of that property?
David Jenkinson: I could not agree more. That is a perfect assessment.
Bob Blackman: The definition of that is 0.1% of the value of the property. If the ground rent is above that, it is considered onerous.
David Jenkinson: Those were the rules that Nationwide introduced. If you have a look at what that rule says itself, it says, on affordability, “Lenders need to establish if the lease will have any impact on the borrower’s affordability. It is a regulatory requirement for lenders to take account of all known future changes […] As such, understanding the level of ground rents, how they increase over the mortgage term and other known charges due under a leasehold agreement are relevant to lenders’ assessments of affordability”. If ground rents and other charges appear to have an impact on the value and saleability of the property, this needs to be taken this into consideration in deciding whether, and how much, to lend.
That is basically saying, if the ground rent, due to its terms and conditions, affected the saleability of that property, they should not lend on it. To me, that is a reasonable assessment. If any of our ground rents had criteria in them that meant they had to be valued in accordance with those conditions and, therefore, they would not have been able to lend—
Bob Blackman: If any of your customers—they are still your customers, because they are leaseholders as opposed to freeholders—cannot sell their property because other people cannot get a mortgage due to the ground rent issue, you would accept that that is onerous.
David Jenkinson: I totally accept that point. If they cannot, I am more than happy to look into it. I have had a look, over the last two years, at how many of these we have had.
Bob Blackman: I am happy that you are prepared to do that, because we have had lots of evidence from your customers saying that they cannot sell their properties.
David Jenkinson: I am more than happy to look at individual cases for you.
HOW DO DEVELOPERS CALCULATE THE FREEHOLD ???
Chair: What calculations do you all do about the difference between freehold and leasehold when you are selling? What is the percentage uplift in a freehold property and how would you calculate it?
Jason Honeyman: It varies, but typically it would be 20 times the annual ground rent. That is a typical calculation we would do in valuing the freehold.
Jennie Daly: When we converted to freehold—and I would explain that we really only sold leasehold properties in the north‑west of England, where it was established custom and practice to sell on a leasehold basis—we set a premium that was roughly around the 20 times £5,900 that Jason has referred to. When we made that change for freehold, the property prices were increased.
David Jenkinson: We did something very similar.
Q112 Chair: If anyone wants to come along and buy the freehold from you, then, all they have to do is pay 20 times the ground rent. Is that right?
David Jenkinson: I will talk about what we have done later, but it is similar. We have a policy along those lines.
Leaseholder’s were very happy that the letter below was sent to the developers after this session. There remains a lot of unanswered questions, and a lot of the evidence they gave contradicts the hard evidence that leaseholders have.
The next Select Committee Inquiry Session is Scheduled on 10th December 2018.
Watch this space……………..