July 18, 2024

Bottomley to raise with Churchill Retirement its decision to continue charging ground rents

Sir Peter Bottomley is to raise with Churchill Retirement – a private company owned by the McCarthy family – its decision to continue to charge ground rents on sites that have not yet opened.

New ground rents were banned under the Leasehold Reform (Ground Rent) Act 2022, which came into force at the end of June last year – with a brief extension to April 1 2023 for retirement housebuilders, who lobbied strongly against the change.

“I would like to be reassured that no new ground rents will be introduced in retirement flats after the April 1 deadline, when they were supposed to end,” says Sir Peter, who intends to raise the issue with CEO Spencer McCarthy.

According to React News, a commercial property news website, Churchill Retirement Living “has been quoting charges of £625 a year on new flats this month, including in schemes that have yet to open”.

A Churchill spokesperson is quoted: “Developments underway where leases were already in place before April 1st will continue to have a ground rent consideration.”

Churchill sticks with ground rents following ban

Retirement housebuilder argues choice is justified as leases were in place before restrictions

LKP is aware that leasehold flats – and leasehold houses – built by non-retirement plc developers have had their legal tenure established and leases drafted long before they are built out or sold.

Indeed, during the scandal over 10-year doubling ground rents, which LKP turned into a national issue, we routinely encountered purchasers of supposedly new build leasehold flats and houses where the leases were written 6 or 7 years before sale. This meant that new leasehold buyers only had a few years before they faced the eye-watering cost of doubled ground rents – which also made the properties unsellable.

Drawing up leases before the April 1 ground rents deadline is unlikely to be a play that can be indefinitely gamed, and Churchill also states:

“In future developments where leases are not already in place we will need to increase the purchase price or introduce an alternative means of funding the communal areas which are a key feature of these sorts of developments.”

It has long been the argument of retirement housebuilders that creating ground rents compensates the developer for the communal spaces – lounge, kitchen, laundry etc – which could otherwise be a couple more flats.

LKP / Better Retirement Housing has never been sympathetic to this argument, as high ground rents attract enthusiastic commercialisers to the sector who also set about monetising the management.

Like all developers, retirement housebuilders sell their flats with slick marketing for as much as they can and routinely new retirement flats sell at a premium compared to the local property market – and often for considerably less on re-sale when they are sold without slick marketing:

We have not had case studies citing ground rents with the extraordinary sum of £625, as mentioned by React News. But retirement flat ground rents have been routinely high – £450-£550 – and way above the 0.1% purchase price value which is insisted upon by mortgage lenders. These properties, however, are bought by downsizing pensioners with cash.

Sebastian O’Kelly of Leasehold Knowledge Partnership is quoted telling React News:

“It’s an incredibly short-sighted and retrograde move from Churchill – there is much less retirement housing in the UK than in other countries like the US and Australia, and this is a good way of ensuring that remains the case.”

Meanwhile, McCarthy and Stone informs Better Retirement Housing / LKP that it has removed ground rents from all new apartments on 1 April in line with the legislation.

No one, of course, need purchase these flats, and buyers are free to tell Churchill to redraft the lease and remove the ground rents, or go elsewhere.

Churchill Retirement also appears to be upset with government over an anti-business agenda.

In February Churchill CEO Spencer McCarthy told Housing Today that he disapproved of the post-Grenfell £3 billion building safety levy imposed on developers: “It’s like blackmail. The government is saying ‘if you don’t sign up, we’ll stop you trading’. It’s astonishing, from a Conservative government you’d think would support growth.”

Mr McCarthy was further indignant over Housing Secretary Michael Gove admission that building regulations were faulty prior to Grenfell: “Companies were just following guidance, these were homes built according to the regs at the time.”

He was “astonished” at the policies being brought forward by a Conservative government, which he would normally expect to support growth.

Another gripe concerns planning issues, particularly in Conservative councils.

Curiously, Better Retirement Housing / LKP has always been sympathetic on this point, deprecating councils prejudice against retirement housebuilding and retirement communities. Retirement housebuilders are further disadvantaged compared with the non-retirement sector as they cannot easily sell off-plan as customers need a home for an elderly relative with immediate availability.

Churchill Retirement, which turns over £200 million a year, built 513 units last year.