December 15, 2017

Ground rents are essential to McCarthy and Stone’s business model

… but leaseholders are concerned it is selling freeholds to anonymous buyers

… McCarthy and Stone complains about ‘right to reply’ to LKP / Better Retirement Housing articles

The freehold of Wosley Court in Leicester has been sold by McCarthy and Stone to Adriatic Land 4, whose beneficial ownership is hidden by nominee directors of the Sanne Group, based in Jersey

McCarthy and Stone told The Times yesterday that there would be fewer of its form of retirement flats if the government reduces ground rents to a minimal – peppercorn – rate.

Last year, McCarthy and Stone made £27 million – 4 per cent of its revenues – by selling residential freeholds to ground rent speculators.

These include Adriatic Land, where the ultimate beneficial ownership is hidden behind nominee directors of the Sanne Group, headquartered in Jersey.

The assorted Adriatic Land freehold owning entities are managed by Will Astor’s £1.3 billion Long Harbour fund, with ground rents collected by his company HomeGround.

Cameron’s brother-in-law and the toxic leasehold scandal

William Waldorf Astor IV, 38, runs two companies who own freehold contracts He is married to former model Lohralee and lives in a £3.3 million town house His company rakes in cash from thousands of leaseholders each year Katie Kendrick may take Mr Astor’s company HomeGround to a tribunal She cannot afford the leasehold on her Cheshire home after it was sold off Frankly, it’s a safe bet that the Honourable William Waldorf Astor IV and his wife Lohralee, a toothsome former model, are untroubled by the property worries that keep most thirtysomething parents awake at night.

Mr Astor, the heir to the viscountcy and a protégé of ex-tycoon Vincent Tchenguiz, has admitted to the Daily Mail that some of the freeholds in his Long Harbour fund are owned offshore. (Mr Tchenguiz was wrongly arrested by the Serious Fraud Office in March 2011, which imploded much of his highly geared property empire.)

Some of our freehold clients are offshore, admits Will Astor’s HomeGround

Homeground, the ground rent gatherer that is part of Will Astor’s Long Harbour group, is gathering revenues for offshore owned freeholders, it admits. In a leaflet circulated to leasehold homeowners who have contacted the company, it says: “Some of our client Landlords are companies registered in England and Wales, with records available at Companies House, […]

This issue is of concern to David William and Ellen May Harrison, who purchased a McCarthy and Stone flat at Wolsey Court in Leicester in 2015.

They are worried that the freehold to their site has been sold to the anonymous owners of Adriatic Land 4.

In any money dispute, they would not know who their adversaries are. Nor, if their flat were forfeited, who would receive this unmerited windfall.

However, a headlease ensures that McCarthy and Stone Management Services Limited manages the site, which is the company’s current practice.

In the past, the Tchenguiz Family Trust, based in the British Virgin Islands, which owns the bulk of the historic McCarthy and Stone freeholds appointed itself to manage the sites through its then ownership of Peverel.

Now called FirstPort, the company no longer belongs to the Tchenguiz interest, although it accounts for the bulk of its business.

The government has launched a consultation, ending on September 19, into whether it should ban developers from selling new-build properties leasehold, or whether the ground rent on new leases should be restricted to a nominal rate.

Clive Fenton, CEO of McCarthy and Stone, told the Times that capping ground rent at a peppercorn would deter investors from buying the freehold.

“These are not windfall profits, these are brought into our land appraisal and impacts how much we can afford to pay for land,” he said.

The Times reports that McCarthy and Stone suffered a 25 per cent fall in pre-tax profits in its first half, although it had largely recovered after an initial slump in profits after the EU referendum last year.

McCarthy & Stone said its revenues had risen 4 per cent to £660 million in the year to August. The builder has completed 2,302 homes, up from 2,296, at an average selling price of £273,000, The Times said.

McCarthy and Stone provided a statement to Better Retirement Housing and Leasehold Knowledge Partnership.

We reproduce it in full below.

In it, McCarthy and Stone criticises us for not contacting the company prior to publication of another article which made mention of McCarthy and Stone ground rents and low resale values of its flats.

These complaints have been considered by us, but rejected as 1/ they concerned sites where McCarthy and Stone has no beneficial interest; 2/ they concerned verifiable data on retirement resales from the Land Registry.

McCarthy and Stone
We support the Government’s overall commitment to improving transparency and fairness in the leasehold market and removing unfair practices. In particular, we do not build leasehold houses and our ground rents are on fair and stable terms. We will be making these points in our submission to the current consultation.

We are pleased that you refer below to the substantial improvements we have made to our business over the last eight years, although we are disappointed this balance does not appear in your recent articles. To this list of improvements to our business we would also add the establishment of our in-house management services team in 2010, which provides high-quality on-site care and support for our elderly homeowners, our industry-leading rating for customer satisfaction, and our significant product enhancements.

We also welcome this opportunity to comment before your articles are published, as per the IPSO code for editors, but are disappointed that you have previously refused our right to reply before publication, and refused to publish our subsequent response, as noted in your email of 9/8/17. [In fact, McCarthy and Stone has been informed that it is free to place a response under this article whenever it chooses to do so.] We continue to believe that a positive relationship is in everyone’s interest.

In response to the points raised in your email:

1. It is common for housebuilders to sell their freeholds to property investment companies once the development has been built and occupied. The alternative is to hold the investment on our balance sheet but then the cash would not be available to reinvest in our business to assist with the funding of future developments and expand and increase housing supply in line with Government policy. The income forms an essential part of each site’s viability assessment and determines how much we can pay to acquire new land. It is not windfall profit.

2. As I think you are aware, we retain a long leasehold interest when the freehold is sold which does not end until after the lease of the apartments has expired. Importantly, this means that we continue to be the landlord and responsible for the estate management of the development. We also continue to be the only point of contact for the day-to-day management of the apartment and manage the provision of services to the apartment and communal facilities of the development generally. This is particularly important given that our retirement developments provide a wide range of important support and care services, and for us it is essential that we control who provides these services. This assurance around who will provide these services is also highly important to our homeowners who want the peace of mind and security that we offer. Our homeowners can still of course take over the management, if they choose, through Right to Manage legislation. This has not happened in any McCarthy & Stone-managed development and we continue to receive high levels of customer satisfaction from independent customer surveys (with more than nine out of ten customers recommending us).

3. The sale of the freehold to the property investment company does not change any of the rights and obligations included in the apartment leases and we remain the homeowners’ landlord. Nor does it change the ground rent terms which are fixed for 15 years and are reviewed on the 15th anniversary and then on every subsequent 15th anniversary. The review is calculated by reference to either an increase in the retail prices index (RPI) or an annual 2% increase in the ground rent in the fifteen year period.

4. We do not sell leasehold houses and our ground rents do not double.

5. We meet all legislative requirements when selling our freeholds. The statutory right for apartment owners to buy the freehold does not arise and so is not applicable in these circumstances. The Section 5 right for leaseholders only applies when the landlord is selling the immediately superior title of the apartment (in our case, this would be the head lease). As we are not selling the head lease, but the freehold interest, the statutory right of first refusal for leaseholders is not exercisable. As noted above, we retain the head lease purely to ensure the quality of the services provided for our elderly homeowners.

6. The legal right also does not arise until a development is over 50% occupied. In the majority of cases, at the time of the FRI sale only a few homeowners will have moved into their apartment.

7. Importantly, our homeowners retain the statutory right to collectively buy the freehold (and any intervening head leases) as well as the option to assume responsibility for the management of the development through Right to Manage legislation after the FRI sale has taken place.

8. The FRIs are sold to established property investment companies once full due diligence has been undertaken. This includes checking that they are properly constituted and meet all necessary requirements. They include Adriatic Land and Aviva, although as we retain the head lease the freeholder has no contact with our homeowners.

9. This process is fully transparent and clearly communicated to our customers before they purchase. As noted below, customers receive the Purchasers’ Information Pack before exchange which lets them know the freehold may be sold, and this is clearly stated on our website. Our Sales teams make this clear at the time of reservation, and they inform our customers that, unlike other housebuilders, we retain a long leasehold interest in the development to ensure the effective running of their development. We have already communicated this to Mr and Mrs Harrison.

Comments

  1. Better Retirement Housing continues to examine McCarthy and Stone practices to sell ground rents for exploitative profiteering by investors. Keep up the good work. Buy reducing ground rents to peppercorn, this will at least destroy this profiteering market in one swoop.
    I and a group of other owners are compiling data on their resales…..and its not pretty reading for M&$.
    We`re going to publish the data in the media and social media where we can target the demographic that are affected…..and we going to keep doing it from now until eternity!

  2. Richard Munday says:

    We are approaching the time when we would start looking at a retirement flat, but due to the problems associated with selling my father’s McCarthy and Stone/Peveral flat we will not even consider it now.
    With the problems now associated with leasehold will only buy freehold and it will have to be a small house not a flat.
    This business model must have changed the views of many prospective purchasers.

  3. Rosemary Marshall says:

    It seems that several of the most prominent developers in this scandal are either related, or have worked previously as colleagues in the business. McCarthy senior, previously boss at McCarthy and Stone, Spencer and Clinton McCarthy of Churchill Retirement Living, and now I learn that the CEO of Pegasus was previously with McCarthy and Stone. What a nice little cartel! No wonder the whole thing is such a tortuous mess with elderly owners as the victims.

    Time to open the windows; not only to rescue those who are caught with onerous ground rents, or appalling resale values, but also to rethink what, without these financial problems is a very pleasant way of life.

    • Michael Hollands says:

      Do not forget Girlings Rentals previous connections with Peverel.
      They buy or rent the old M&S Peverel managed apartments apartments that are unsellable.
      One company manages to devalue them, for the other to buy them cheap and then rent at the going rate.
      And there is Baroness Greengross formally Chief of Age Concern and now the ARHM who protects many management companies. She never supports leasehold reform and once suggested that the retired leaseholders complained as they had nothing better to do.

      • Michael Hollands says:

        Girlings were originally with M&S, Peverel and Age Concern.
        Many apartments are very expensive when new, some get run down through poor and expensive management,become impossible to sell, do then get bought up cheap and rented out at market prices.
        Everything operated in that tight circle.
        Who was the genius who thought up that idea.

        Greengross was with Age Concern and now ARHM the trade organisation which protects Peverel/FirstPort and others. She once described the elderly residents as Barrack Room Lawyers.

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