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Freehold company hikes ground rents for leaseholders facing huge fire safety bills
A freehold company has hiked the ground rents of leaseholders facing crippling bills to repair fire safety defects in their building.
E&J Estates has enacted its right to a 10-year ground rent review at the Hemisphere Building in Edgbaston, Birmingham, with most rents rising from around £300 to more than £400 a year.
The 344-home development is facing the prospect of a £13.8m remediation project after a fire engineer’s report identified combustible EPS insulation and build defects in the external facade.
E&J said the hike was necessary because of the demands of the pension fund it invests the money in.
Hemisphere has been accepted onto the government’s Building Safety Fund, but it is not yet known how much of the necessary work will be covered by the fund and how much will remain with leaseholders.
They have already paid a combined £200,000 in professional fees and £5,000 a week in waking watch costs for almost a year. They also face an insurance hike of up 300% when their current cover expires in March.
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The building failed an ‘EWS1’ assessment in April last year, meaning residents have been unable to sell since.
Paula Shalloo, a leaseholder in the block, told Inside Housing: “We pleaded with them to take our current situation into account and perhaps show some leniency, but they haven’t listened.
“The sum is only small in the context of everything else we are being asked to pay, but it really does feel like the straw that broke the camel’s back.”
While ground rent increases are a perfectly legal mechanism and common in most standard leases, they have become subject to increased political scrutiny in recent years.
In January, the government promised legislation to ban ground rent, allowing leaseholders to extend their leases to 990 years with ground rents set to £0.
The fees are charged by companies that buy the freehold of the block from developers. These are often investment firms that outsource the actual management to an agent.
Hemisphere was developed by Redrow, with Laing O’Rourke carrying out the construction under a design and build contract that completed in 2011.
Redrow sold the freehold interest to E&J, which has since sold it to RMB 102, a connected company.
A spokesperson for E&J said: “The freeholder has great sympathy with leaseholders of the Hemisphere Building faced with worry and uncertainty around the costs involved. We believe however that the bulk of these funds should be recoverable from the government’s Building Safety Fund, to which we understand an application is being made.
“Ground rents are generally scheduled to increase at fixed periods, by fixed amounts, as determined by the lease. The ultimate right to ground rents collected by E&J lies with a pension provider, which uses ground rent investments to pay annuities to its pensioners. Were ground rent not to increase as specified in the lease, the result would be a shortfall in annuity payments. Ground rent reviews at Hemisphere are fixed to [retail price inflation].”
A spokesperson for Laing O’Rourke said: “We have been contacted by the management company and are working with them to understand the nature of the claims. At this stage nothing has been determined and we cannot comment further until the process is more advanced.”
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