“The point that I am trying to make is that these onerous clauses, leases and terms do not get there by accident; they are put there by whoever wrote that lease to start with. The developer has set out to do that, and then the management company and the managing agent continue to make these excessive charges. We need to look at sorting that out, so the onerous clauses are not there to be explained to a buyer by either the estate agent or the conveyancer. They should not be there in the first place.“
Beth Rudolf, Director of Delivery, Conveyancing Association giving evidence to the HCLG Select Committee’s Inquiry into Leasehold 10th December 2018
This is another piece about the problem of “modern new build leaseholds” subject to increasing ground rent clauses and other onerous terms but it is not the promised third article in the series leading up to possible remedies against developers – that is in the pipeline – but as the HCLG Select Committee’s Inquiry into Leasehold progresses, some interesting evidence is emerging.
The point made by Beth Rudolf, giving evidence on the 10th December 2018, quoted at the top of this post would appear self-evident, but it was not one put to Jennie Daly of Taylor Wimpey at the previous session on the 18th November 2018, when the following evidence was given:
Jennie Daly: … Taylor Wimpey does have a voluntary assistance scheme for our customers who were affected by a specific 10-year doubling ground rent clause. We took the matter extremely seriously when it was brought to our attention around autumn 2016. The reason for that timing is that the leases we created with that specific clause were used on new developments between 2007 and 2011, and they were coming up for their first doubling and were starting to cause concerns to customers.
Before proceeding, let me be very careful here, Jennie Daly is a recent appointee (April 2018) to the Taylor Wimpey board and her knowledge of what happened historically will be derived from what information she will have received from briefings and, possibly what she has established by her own research, and although she joined the company in 2014, it is not even necessarily the case that she was part of the “we” to whom she was referring when she said:
“We took the matter extremely seriously when it was brought to our attention around autumn 2016.“
But, having given all those caveats, and making it clear moreover, that nothing which follows suggests Jenny Daly was doing other than her best to give the evidence as she understood it to be, that answer bears rather closer consideration. The “matter” was not a previously undiscovered manufacturing defect in a product, which may well only come to a manufacturer’s attention after a product has been in circulation for some years, it was:
“a specific 10-year doubling ground rent clause“
which, as Beth Rudolf rightly observed, is one of those terms which
“do not get there by accident; they are put there by whoever wrote that lease to start with.“
Jennie Daly did go on in her evidence to say of the clause:
“The reason for that timing is that the leases we created with that specific clause were used on new developments between 2007 and 2011, and they were coming up for their first doubling and were starting to cause concerns to customers.“
but it follows that “the matter” that was taken “extremely seriously” can only have been that people were starting to notice and complain about the draconian effect of the clause, not any concern on Taylor Wimpey’s part that the clause had been drafted and inserted in these leases in the first place.
The bland reassurance, with its apparent edge of candour, that “the matter” had been “taken extremely seriously when it was brought to our attention” averted a whole raft of other questions that might, reasonably, have been asked about how the clause originated and just how anyone thought it was justifiable in the first place. The question might that equally have been asked was: if the clause was not used after 2011, how had the change been sanctioned without someone, somewhere in the company, having had it brought to their attention?
While that last question will have to be left hanging, there is actually some evidence about the genesis of the doubling ground rent clause and, strangely, it comes from 2007, when the clause was first introduced.
On Tuesday 25 September 2007 in an article entitled ‘New warning on small print’ with the sub-heading “We unearth a disturbing new trend in leases – a buried clause that that means ground rent can double in 10 years” Homes & Property Newsletter told the tale of an intending purchaser in of a flat in a Taylor Wimpey development in Mill Hill; the report quotes the intending purchaser, who had demanded the return of his £2,000 deposit as saying:
“Even first-time buyers know about ground rent, but they expect it to be a small and fixed amount, as it has always been, … But in my case, when I looked through the 19-page draft lease from Taylor Wimpey for a modest flat in Mill Hill, I discovered that the initial ground rent may be only £300 a year — but by 2057 it would be £9,600.”
The Taylor Wimpey did return the deposit as a gesture of “goodwill” but their response, also quoted in the report, is enlightening:
“[the rent review is] George Wimpey UK policy and is in place on all leasehold developments … Historically, most ground rent review clauses were tied to the Retail Price Index (RPI). But house price inflation has significantly outstripped RPI, and developers are looking at terms and conditions that better reflect this.”
The source of the latter part of this quotation (and one presumes the first part as well) was David Bridges, who, from his biography on LinkedIn, served with Taylor Wimpey:
“April 2007 – June 2008
Headed up Sales & Marketing, Strategy & Partnerships, Sustainability and Start-ups. Sat on the Board of Taylor Wimpey UK, a £4b turnover business which delivered over £600m profit in the year to the end of December 2007.“
which indicates, not only that the clause had been inserted as a matter of considered policy but that the handling of the buyer’s complaint in 2007 had reached up to board level.
I should add, that although I have not researched this closely, from my experience, the reference to ground rents “historically” being linked to RPI would require quite an extended meaning of “historically” to include the relatively recent. My experience would accord more closely with what was said to Homes & Property Newsletter by the intending buyer (who, my researches suggest, was a chartered surveyor):
“Even first-time buyers know about ground rent, but they expect it to be a small and fixed amount, as it has always been …I have since spoken to several solicitors who confirmed that, like me, they had never heard of this, and described it as outrageous … ”
Much of what is in this post was covered by a piece by LKP at the end of 2016, indeed Jenny Daly’s reference to the matter having been brought to Taylor Wimpey’s attention in 2016 may be a reference to the LKP’s having raised the issue of doubling ground rents with Taylor Wimpey then. Be that as it may, the recent evidence to the Select Committee adds a new topicality to the story and certainly justifies revisiting it.