I’ve been trying to get my apartment sold. 

The sale had not been completed six months after the initial June offer was accepted. It wasn’t because the property was poorly presented or incorrectly priced. In fact, to get it, the buyer went into a bidding contest.

However, the buyer could not complete the sale because the bank and the building societies would not loan on it.

It is because of a small clause in my lease that covers ground rents. This has become a growing concern for lenders and their lawyers.

Lenders have changed their stance on lending on some leasehold flats due to toxic ground rent clauses

Because of toxic ground rent clauses in some leasehold flats, Lenders changed their attitude about lending to them

The implications of the clause that was buried in the densely-worded legal documents 15 years ago were not something I knew about when I bought the property. That is evident even though my solicitors didn’t mention the issue at purchase.

Although I was able to remortgage the house after purchasing it, I have not refinanced the property since 2005. Since then, lenders have changed their policy on leasing flats with leaseholds such as mine. 

The clause in my lease is about toxic ground rents. It states that the freeholder may increase payments significantly every 21 years.

Ground rents are a growing concern. The Government is looking at them in new legislation.

New homes are built using unfair ground rental clauses, where ground rents are doubled every ten year.

If similar increases are applied at future ground rent reviews, flat owners in my block will be paying more then £20,000 a year in 50 years’ time 

Recently, my flat completed a 21 year ground rent review. The ground rent did not double. Instead, it increased from £100 a year to more than £600 a year.

If similar percentage increases were to be applied at subsequent ground rent reviews, flat owners in my block would be paying almost £4,000 a year after the next review, and more then £20,000 a year in around 50 years’ time. 

This is why some lenders refuse to lend against such clauses. 

My 15-year-old freeholder has stated on its website, “Writing to all leaseholders with ground rent clauses where they double more often than 20 years to inform them about the possibility to enter into voluntary Deeds of Variation to modify this review clause.” 

I have not received any such letters or information about the cost.

While it’s not known exactly how many flats will be affected by these clauses, some estimates put the number at tens to thousands. However, officials behind closed doors have stated that that reality is much higher. 

This means that those who have toxic ground rent clauses will be left without any tangible assets, unless they can find a cash buyer.

Those with toxic ground rent clauses are left with effectively worthless assets unless they are able to find a cash buyer for their property

If they can’t find a buyer, those with toxic ground rental clauses will be left with virtually worthless assets

Are there other options? 

We realized that the only option was to acquire the freehold for our block. The residents could then get rid of the unjust ground rent clause by extending their lease.

You can purchase a deed variation for a lower price (we share the story below of someone who did this). 

The purchase of the freehold offers other advantages, such as being able to appoint an agent for management, instead of being assigned by an outside freeholder. 

Around six years ago we discussed purchasing the freehold. Our first attempt at it was unsuccessful. We rediscovered the idea a few more years later, and we took it on board. 

My original intention was to remain in the flat. However, I cannot afford the loan to purchase the freehold so it is no longer possible for me to do so.

Although we had hoped to purchase our freehold earlier in the summer, several delays caused delay. It should take between six and eight months to buy a freehold.

It is not easy to buy a freehold. We were able to get started by naming a “project manager” and also a solicitor, as well as a surveyor, at the beginning.

Project manager helped with some basic administrative tasks, including setting up a company to buy the freehold. Residents were each given a share of the company. He also set up a bank account and collected a total of £300,000 from the 12 residents to cover the costs of the entire exercise.  

Insisted initially that the freehold transfer would take place earlier in the summer. This was a year ago since the first resident zoom meeting. He then began to collect cash from leaseholders. 

This was the moment I realized that I had found a buyer.

But the project manager didn’t apply for the freehold on our parking spaces at the same time as our flats, something that could have saved months in unnecessary delays. 

Also, he did not ensure everyone had signed or received all required documentation at critical points during the process. This led to further delays.

Invalid leasehold system 

When so many people are benefitting from the existence of an obsolete leasehold system, it’s not surprising that they continue to be in place.

No ordinary leaseholder in a large block of flats could reasonably be expected to navigate the process of buying a freehold on their own – and each of the different parties involved charged us a fee.

These so-called experts were unable to recognize the real impact of toxic ground rent clauses. 

In fact, the project manager made it clear that my apartment could be sold at any time and that the purchase of freehold (which would have allowed for the elimination of ground rent clauses through lease extensions) wasn’t needed. 

Aunt Maud is in Leicester, so what hope do they have of understanding the implications?

Unfair clauses in leases should never have been permitted. They should be prohibited for future leaseholders as well.

Take action on ground rents 

The good news? Unfair lease clauses are being investigated and are being addressed by the Competition Markets Authority.

Leasehold Reform Act

Leasehold Reform Bill (Ground Rent Bill), will eliminate ground rents from new qualifying leasehold properties in England or Wales.  

For those with toxic ground rental clauses, however, this new regulation won’t resolve the problem. This homeowner will continue to have difficulty selling their house without finding a buyer for cash or paying to get the ground rent clause removed via a deed.

As a result of its investigations, the property developer Countryside has agreed to scrap unfair contracts that saw leaseholders subjected to ground rents doubling every 10 to 15 years. 

Taylor Wimpey also stated that ground rent clauses will be removed that are doubled every ten years. 

Developers and investors need to do right and remove any problematic clauses from contracts. 

They can refuse to comply, as the CMA already stated that they are prepared to sue them. It could establish a precedent that this type of clauses is unfair and illegal. 

Leaseholders who have uncapped or doubled clauses in leases would find it a tremendous help to learn that they were declared illegal by a court. 

These freeholds are often bought by investors or other entities as investments. However, they may not have been aware of toxic ground rent clauses. These investors and other organisations would benefit as well from any changes in the law.

Reform of leasehold 

One reason such clauses were allowed to exist is perhaps a dearth of regulation in the sector, and the people who work within it.

Velitor Law’s Liam Spender explained that if you’re responsible for the money of someone else, it is subject to strict regulation.

If you steal a penny, they would knock you down like bricks.

‘With leasehold, they let any old crook set up an agency – even if they have only a couple of small buildings, they could easily have more than £1million in client money – and they just treat it like their own personal piggy bank.’

Leasehold legislation updated 

Although it is well aware that the failures in the market for property are evident, there has yet to be any regulation.

Each day, the situation remains unclear and another victim is added to this harmful ground rent situation 

It is necessary to establish the legal checks to make sure that leasehold positions are not misused by people who want to gain from them. If they do, there should be regulation or anombudsman.

Regulators are being developed. We need to find out how individuals can get out from these dangerous ground rent situations, without paying tens or thousands of pounds to just sell their properties.

Each day, the situation remains unclear and another individual is added to this list.

My property is up for sale. 

Alistair Dennis has been trying to sell his flat for the past year

Alistair Dennis is trying to sell his apartment for over a year

Alistair Dennis (37), has tried to sell his apartment for over a year. He feels like his life is in danger until the sale is completed.

His estate agent told him that he cannot find any cash buyers and no lenders will finance it.

Alistair reached out to Shanly Homes regarding a deed variation in an effort to decrease the ground rental. It would be reassuring to lenders, and they will likely lend more money on the property.

Alistair explained: ‘I got in touch with the developer and was told that it would cost me £8,000 to change the provision in the lease.’

“My partner and me would love to share our savings and purchase a home together in order to start our families, but it is taking our lives off the line.

Alistair lives in the block of 70 flats at Maidenhead in Berkshire. There are twice as many.

He stated that the agent hadn’t raised this issue at first, but they may not have known.

“Second-hand flats are falling in value and developers only profit. Our only option is to get money for our flat.

Alistair bought the flat in 2015 and pays £500 a year in ground rent. That ground rent increases every 20 years by the greater of £500 or RPI.

Since buying the flat, he has also seen his service charges increase from £1,200 a year to £2,800 a year. 

His response was that he had not expected that it would happen, and that he would not be in a position to sell his apartment. It is necessary to invest more money to make the flat sellable.

Shanly Homes was reached but declined to comment.