Carlex took the issue up with chief executive Clive Fenton and the over-hyped expression has been dropped from McCarthy and Stone publicity. Its website has been amended.
Last summer McCarthy and Stone decided to start offering its flats with 999 year leases. For years it had built with 125 year leases, which in the lifetime of the third or fourth owner would almost certainly need extending.
If a lease falls below 82 years it evaporates in value, much to the gain of the freehold owner – a point well appreciated by both McCarthy and Stone, which has disgraceful history of enhancing the values of its freeholds, and those who bought them.
McCarthy and Stone accepts that using the term “virtual freeholds” was over-egging the pudding.
“I understand this is a common expression to refer to long leases and it was put in speech marks to help make the point that it was not the same as formal freeholds,” explained the company’s publicity chief Paul Teveson.
“However, we do recognise that it could be confusing so we have changed ‘virtual freeholds’ to ‘999 year leases’ in the article.”
The term “virtual freehold” to describe McCarthy and Stone products has been repeated by other information sites, such as here
The Office of Fair Trading ruled in 2012 that exit fees payable on sale, which were a condition of McCarthy and Stone leases for flats built until 2008, were “likely” to be an unfair contract term.
The Law Commission is now examining the theoretical justification for exit fees, but its inquiry will not help those living in older flats which still have them.
This may help readers understand one important difference between a freehold house and a leasehold flat under English law, and why describing a lease as a “virtual freehold” is codswallop.
If you decline to pay a court established debt and you own a freehold property, it will be repossessed, the debt paid and the remainder (if any) will be returned to the former owner.
If a leaseholder – who is simply a long term tenant in law – declines to pay a court established debt, the lease will be forfeited, meaning that it ends. The former owner who put up the money, and any mortgage provider for that matter, loses their stake entirely.
This applies whether the flat is worth £140 million, as at One Hyde Park, or £30,000. And it does not matter whether the lease is one year or 999 years: if you are a leaseholder, you are a tenant.
Only England and Wales have the leasehold system, and it is a licence to print money.
On the other hand, the present generation of management at McCarthy and Stone are to be congratulated for extending leases to 999 years.
At the parliamentary roundtable last month, Sebastian O’Kelly, of Carlex, told MPs present:
“If a housebuilder in your constituency is building flats with 125 year leases and, say, £450 a year ground rents, ask why.
“125 year leases won’t catch the first buyer, or the second buyer, but almost certainly will the third or fourth.”
The high ground rents in retirement housing are also a blatant revenue enhancer for the freehold, and is done to the detriment of consumers.