01708 757575 mbs@ker.co.uk Enterprise House, 18 Eastern Road, Romford, Essex UK, RM1 3PJ

Taylor Wimpey Second Owners – E&M Scheme

If you are not eligible for the Taylor Wimpey “Ground Rent Review Assistance Scheme” for example because you are a second home owner who did not buy directly from Taylor Wimpey or second owner who lets out the flat then you may be eligible for some similar schemes being offered by the current Landlord, E&M or Estates and Management Limited.

Unfortunately these schemes are not as attractive as the Taylor Wimpey Scheme because you are responsible for your own legal costs and you have to contribute to the cost of the Landlord. In addition, in some cases, the landlord may want to charge you a premium (payment) to vary the lease. However it does make a significant change to the ground rent provisions making it more acceptable to lenders and therefore buyer’s in the future.

What is the proposed variation to the lease?

Essentially the deed will vary the terms of the lease to effectively turn the 10 year doubling ground rent review clauses into a 10 year RPI (Retail Price Index) rent reviews.

What do you charge for dealing with the scheme?

Our fees for dealing with the E&M rent review scheme are similar to the cost as we charge on the Taylor Wimpey scheme which is £750 inclusive of VAT and Land Registry disbursements (which include copies of your titles and the freehold title, the lease and registration of the deed at Land Registry).

Our costs include the cost of obtaining consent from your first lender but not any administration charges made by them (many do not charge such as Nationwide, Halifax and Barclays but some such as Santander have a fee of £105). In addition the managing agents who run your management company may charge a fee for approving and sealing the variation but this varies according to the company involved in your block. The variation does not affect them but as they are invariably a party to the original lease they need to be a party to the variation deed for Land Registry purposes.

E&M also require their costs to be paid. Effectively these are required to be paid up front whether or not your proceed to complete the matter. This cost is currently £795 inclusive of VAT. We will need this sum on account before we can provide the undertaking and obviously E&M will not issue any paperwork to us until this is paid.

What is the problem with 10 year doubling reviews?

Clearly it does not take a mathematician to work out the effect of a ground rent that doubles every 10 years.

Within 50 years a ground rent of £250 per annum (or year) becomes £8,000 per annum {£500 (1st review) £1000 (2nd review) £2000 (3rd review) £4000 (4th review) £8000 (5th review)}.

In comparison historically ground rents were often small sums increasing, if at all, every 25 or 33 years, for example £75 for the first 33 years and £150 for the next 33 years and £300 for the next 33 years.

These former Taylor Wimpey leases also tended to back dated the start dates of the term to before the date of the lease so that the reviews started at year 8 for example.

However the second compounding issue was that the developer did not take into account the value of the property being sold, so these same rent figures (e.g. £250 per annum) applied to lower value housing outside London and the South East (where a ground rent is a much higher proportion when compared to the value/sale price) .

Therefore the sale-ability or mortgage-ability of your property may be affected to different degrees dependent upon the value of your property.

A flat worth £600,000 in London will be less affected than the £120,000 house in Liverpool but both would probably benefit from the change being offered to the lease.

Mortgage Lenders Determine the Market Conditions

Lenders changed their criteria for lending on such leases since they were granted. Generally now any newbuild flat should not have a ground rent which is more than 0.1% of the value of the house or flat and there should not be a 10 year doubling rent. RPI is currently seen as an acceptable alternative by most lenders. Ground rent doubling over longer periods, say every 25 years are also seen as acceptable by the majority of lenders at present.

As a result many buyers are refusing to buy such leases and this is part fuelled by recent advice from solicitors and valuers driven by lenders instructions.

The Nationwide Building Society and many other lenders updated their mortgage instructions in mid 2019 to deal specifically with ground rent reviews on “second hand” properties. They advised that where ground rent doubles more than every 20 years (e.g. doubles every 5, 10 or 15 years) solicitors are to advise the Issuing Office for the mortgage offer and the Offer in their words “will be declined”.

There is more pressure therefore to amend the lease to a more acceptable form of ground rent review. At present the same lender, the Nationwide states that the following type of rent review is “Acceptable (no requirement to advise Issuing Office)” ground rent review periods of 10 years or more with a ground rent escalation based on RPI.

Are Retail Price Index (RPI) reviews just as bad?

We are not valuers but the view taken by most in the industry (including lenders, lawyers and surveyors) is that a RPI 10 yearly review is better than a 10 yearly doubling of rent. The RPI figures are published regularly by the government. If you look at the past 25 years or so RPI effectively results in a doubling of the rent every 25 years as opposed to every 10  but as they say we past performance  cannot guarantee future performance. However as this is a government index used for many other purposes it is likely it will remain relatively stable.

How does a Retail Price Index (RPI) review clause work?

The rent review periods are the same – once every 10 years. However the rent review is based on changes on an “Index”. The actual index  used is the “All Items” index figure of the Index of Retail Prices. This can be found on the website of the Office of National Statistics ( https://www.ons.gov.uk ).  For ease you can download the Excel file below series-290118 which is a .csv file with the statistics since January 1987 when the index started.

To give you an indication of how the review will affect a rent tale the following example (usual actual historical RPI figures):

  • Assume the lease term commenced in December 2007 at a rent of £250 per annum
  • For the 10 yearly review in 2017 we need to obtain the Base Figure for RPI which would be 208.90 (in October 2007 as most clauses take the figure 2 months before the review date).
  • The Index Figure in October 2017 (2 months before the first review date) was 275.30.
  • The new rent is calculated using this sum £250 x 275.30 ÷ 208.90 = £329.49. An increase on the first review of £79.49 as opposed to £250.

Over 30 years (using historical figures from 1987-2017) a rent of £250 would increase to (£250 x 275.30 ÷ 103.20 =) £666.90 whereas under the doubling review is would be £1,000 (although depending on when your lease term started the rent may be £1,000 by year 28 or 29.

These rent reviews are however upwards only – that is to say they will not reduce the rent if the index falls (this is unlikely anyway). The rent reviews also last throughout the whole term of the lease whilst the doubling rent review was limited to the first 50 years only.

As solicitors what do you do?

We provide a the legal service required to vary the lease. We only act for you (and your mortgage lender). Obviously we need to make sure that the details of the variation are correct and there are no other provisions which would adversely affect your lease.

How can I be sure if it affects me?

If you have a copy of your lease you can either email Mark (mbs@ker.co.uk) with a copy or look at the first clause under the ‘Rent review’ heading. This will indicate the type of rent review you have. If you don’t have a copy of your lease you can call the solicitor who acted for you in the purchase and ask for a copy.

What if I am selling?

As the process can take several months we recommend you start as soon as possible. We can of course also deal with the sale for you at the same time.

Will the rent reduce if my rent has already doubled following the first rent review?

Rent continues to be paid under the current lease arrangements until the lease is amended however it appears that upon the new Rent Payment Date (usually 1st January in each year of the lease) the rent will be reduced to the original rent subject to a RPI review of that original rent. Any doubled rent paid in the meantime will not be refunded.

Also bear in mind the timescale for this process – it can take several months to complete this process because it is not only you involved. The freeholder and the management company (if any) will also have to sign the variation. Your lender (if any) will also need to provide consent. There are also a lot of these processes going on so we are seeing delays in the freeholders issuing the necessary documents in the first place. To be safe you should instruct us 3 months before any rent review but even then a satisfactory outcome may not be guaranteed.

Where can we help?

If you decide to progress with the variation we can help you on the legal side.

We can assist you with these matters whether you have a single flat or 20 flats. Please contact Mark Sadler, Partner on 01708 757575 or email mbs@ker.co.uk for further information or to instruct us.

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