Countryside and Taylor Wimpey ordered to remove 'unfair' doubling ground rent clauses from leases
Two major house builders have been ordered to remove 'unfair' leasehold clauses that allow them to double ground rents every 10 or 15 years. It comes after the competition watchdog found these terms can make it 'impossible' for people to sell or get a mortgage.
Update: 18 March 2022: The Competition and Markets Authority (CMA) said 15 businesses that bought freeholds from housing developer Countryside, including investment firms and housing associations, have agreed to remove terms that would have seen ground rents double in price every 10 to 15 years.
There are 3,400 leaseholders affected, who will now just pay the ground rent amount charged when they first bought their home.
The fifteen businesses that have agreed to the new terms are as follows:
- Adriatic Land 3 Limited (part of the Abacus Land and Adriatic Land investment group).
- Brigante Properties Limited.
- Chris Allnutt and Company Management Limited.
- Claycourt Limited.
- Great Places Housing Association.
- London and Quadrant Housing Trust.
- Mann Island Properties Limited.
- Notting Hill Genesis.
- Penult 101 Limited.
- Poplar Housing and Regeneration Community Association Limited.
- RG Reversions 2014 Limited.
- RMB 102 Limited.
- SF Ground Rents No 15 Limited.
- Tapestart Limited.
- Weathercourt Limited.
It comes after the CMA launched enforcement action against four housing developers; Countryside and Taylor Wimpey for unfair contract terms and Barratt Developments and Persimmon Homes for possible mis-selling of leasehold homes, in September 2020.
In September 2021, Countryside agreed to free leaseholders of clauses that would see their ground rent doubled every 10 to 15 years, while Taylor Wimpey agreed to remove similar leasehold clauses in December 2021. In June 2021, Aviva also committed to removing doubling ground rent terms, while Persimmon offered leasehold homeowners the opportunity to buy freeholds at a discounted price.
The CMA’s investigation into possible mis-selling by Barratt Developments is continuing.
In addition, the CMA is investigating two of the management firms listed above - Adriatic Land 3 and Brigante Properties - to try to get them to remove the same ground rent terms from freeholds purchased from housing developer Taylor Wimpey.
The Competition and Markets Authority (CMA) first launched an investigation into four housing developers last year over concerns they were using unfair contract terms and potentially mis-selling leasehold homes. Now, it has written to two of the firms - Countryside and Taylor Wimpey - to ban the use of doubling ground rent terms. Its investigation into the other developers - Barratt Developments and Persimmon Homes - is on-going.
Under the shake-up, Countryside and Taylor Wimpey will still be allowed to charge ground rents, including those that increase in line with inflation - something the CMA says it's still investigating - but they must:
- Remove doubling ground rent terms from all existing contracts.
- Agree not to use doubling terms again in any future leasehold contracts.
It's unclear whether this change also applies to leases that have since been sold on by the house builders to management companies. We've asked the CMA and we'll update this story when we know more. The two companies must now agree to sign formal commitments – known as ‘undertakings’ – to remove the ground rent terms from their leasehold contracts or they face court action.
The moves comes after it was announced earlier this year that millions of homeowners in England will be given a new right to extend their lease by 990 years and not have to pay any ground rent, while extending a lease or buying a freehold will also become cheaper for many, under sweeping new Government reforms. Housing secretary Robert Jenrick has labelled 'crippling' ground rents as 'unfair'.
You can extend your lease to try to avoid rising ground rents
One way to try to get around increasing ground rent clauses is to take out what is known as a ‘statutory’ lease extension - which you can do if you have owned your property for at least two years. This extends the lease but also reduces the ground rent down to zero, which is sometimes referred to as a 'peppercorn' lease.
To do this though, you will have to pay the freeholder a premium, and you'll also have to pay for the legal costs of extending the lease. How much this premium is will depend on several factors, including the cost of the property, so ensure you know the costs involved first.
What do Countryside and Taylor Wimpey say?
Taylor Wimpey told us it stopped selling leases containing 10-year doubling ground rent clauses on new developments from January 2012 and has set aside £130 million to cover the cost of converting leases so that they are instead linked to inflation.
A Countryside spokesperson said it hasn't sold properties with doubling ground rent clauses since 2017 and adds that it introduced a scheme to help those whose ground rents doubled more frequently than every 20 years. Both firms say they'll continue to engage with the CMA on the issue.