Taylor Wimpey is to pay out up to £130m to buyers of some of its new-build leasehold properties, which were rendered near-worthless after homeowners found themselves trapped in spiralling ground rent contracts.
In a statement issued at its AGM, the housebuilder said a review of the contracts, in which the ground rent doubles every 10 years, found they were legal but “not consistent with our high standards of customer service and we are sorry for the unintended financial consequence and concern that they are causing”.
It said it would make a provision of £130m “to alter the terms of the doubling lease to materially less expensive ground rent review terms, with the group bearing the financial cost of doing so”.
An investigation by the Guardian last year in collaboration with campaign group Leasehold Knowledge Partnership uncovered how buyers of Taylor Wimpey homes, predominantly in the north-west, found them to be almost unsaleable because of the doubling ground rents.
One flat owner reported being trapped in a property that had been rendered virtually worthless just six years after being built. Others have been forced to pay £1,000-plus fees to their freeholder for permission to build an extension, while attempts to buy out the leasehold have been met with demands of £35,000 or more, even though the lease has, in some cases, hundreds of years to run.
Sebastian O’Kelly, of the Leasehold Knowledge Partnership, said: “Homebuyers wanted homes and trusted a plc housebuilder. Taylor Wimpey created an investment asset class – the freehold – which it then traded to anonymous and murky investors, who hide their beneficial ownership behind nominee directors.
“This ground rent racket is wealth erosion on a massive scale, which has fallen mainly on young first-time buyers and their families. It has revealed the rotten core of leasehold as a form of property tenure.”
But questions remain over who will benefit from the £130m put aside by Taylor Wimpey, and whether other developers will also compensate leasehold buyers.
Graham Balchin, a solicitor who has acted on behalf of many homebuyers trapped in escalating ground rents, said: “There can be no doubt that the Guardian’s series of articles has played a big part in generating the publicity which has in turn resulted in this change.
“While this development will come as an enormous relief for those leaseholders who bought new from Taylor Wimpey, many of these properties have changed hands since they were first sold and its statement indicates that it is only those who bought direct from Taylor Wimpey that will be helped.
“If that is a correct understanding of TW’s position, it will mean that there will still be thousands of TW leaseholders who will not be helped. That class of owner could therefore remain stuck with onerous ground rents in properties which will remain difficult, if not impossible to sell, at least for a price close to the value of a similar property without the onerous doubling clause.”
Taylor Wimpey reported profits of £733m in the year to December, up 22% on the year.
Ground rents that double every 10 years have become hugely attractive to specialist investors, because they imply an interest rate of 7% a year when the Bank of England base rate is just 0.25%.
Many buyers were told that the 250- or even 999-year leases on their new-build homes were “virtually freehold” because of the length of the lease. But the investors who have snapped up the leases, often for just a few thousand pounds, refuse to sell them to householders unless they pay £30,000 or more. In some cases they simply refuse to sell the freehold, and are not legally required to do so.
Buyers have also complained that their attention was not drawn to the ground rent increases, as they were encouraged to use the conveyancing services provided by the developer.
Sir Peter Bottomley, MP for Worthing West, has led the campaign against leasehold abuse in parliament. He called on other developers to match the compensation to be offered to buyers of Taylor Wimpey homes.
“Taylor Wimpey has recognised that leaseholders have been disadvantaged by at least £130m,” Bottomley said. “What is needed now is for all other developers to recognise their responsibilities. Developers have to rectify the impact of their past behaviour on innocent leaseholders.”
The scandal of escalating ground rents comes amid a surge in leasehold sales in the UK. Earlier this month, a report by the campaign group HomeOwners Alliance warned of the worsening “nightmare” of the leasehold system in England and Wales, saying millions of homebuyers were hostages to exorbitant bills and estimating that landlords were in line to pocket £4bn from lease extensions.
Leasehold, once seen as a dying relic of the Victorian property market, has returned with a vengeance since the 1990s, according to the report. In 1996, just 22% of new builds in the UK were sold as leasehold, but this has doubled to 43% at present. In London, nine out of 10 new builds are now leasehold.
