Leasehold Solutions has called on the government to rescue the “forgotten casualties” of the doubling ground rent scandal by tackling so-called ‘informal’ lease extensions undertaken for leasehold flats.

Louie Burns (pictured), managing director of the leasehold enfranchisement specialists, said: “The implications of doubling ground rents from informal deals on leasehold flats are a huge scandal on a much greater scale than leasehold houses. However, the scandal of informal deals has received virtually no media nor political attention and many flat owners remain completely unaware of the trap they are falling into.

“Hundreds of thousands of flat owners in England and Wales have already been affected. I estimate that up to 50% of all lease extensions carried out over the past 25 years have been via informal deals.”

The owners of leasehold flats have a legal right to extend their lease by an additional 90 years and to reduce the ground rent to zero. Once the extension is completed this strips out any future income from ground rents and lease extensions for the freeholder.

Burns explained: “Freeholders really don’t want flat owners to exercise their legal rights, because if they do then the freeholder will lose out on tens of thousands of pounds in future income. By extension, if flat owners do use the legal route then they can save themselves huge amounts of money that they would otherwise have paid to the freeholder.

“To protect their future income, many freeholders offer flat owners ‘informal’ deals, which they claim will save the flat owner time and money. However, these deals will usually only extend the lease back up to 99 or 125 years (rather than adding an additional 90 years under the statutory route).

“Worse still, they often include onerous ground rents which can be £500 per year linked to an aggressive accelerator, for example doubling every 10 years. This is evil genius by freeholders, as in less than 20 years the flat owner will once again need to extend their lease, except that now the onerous ground rent means the flat owner has to pay considerably more for the extension.

“We’ve seen many instances of freeholders making an extra £70,000 over 15 years, all because the flat owner wanted to save a few hundred pounds by avoiding the statutory route.

“In the future, buyers may also find it much more difficult to secure a mortgage on a flat with onerous ground rent terms, as lenders have tightened their lending criteria – which could leave flat owners with a property they are unable to sell.”

Flat owners that accept an informal deal have no protection under the law and have no opportunity to remove unfavourable clauses in their lease terms, including onerous ground rents and service charges.

Burns said: “What is so astounding is that these informal lease extensions are allowed to happen to thousands of unsuspecting flat owners every year. It seems absurd that you have robust consumer protection when you sign up to a £10 a month mobile phone contract, but it remains entirely legal to trick someone into a complex and expensive lease extension deal with no legal recourse or protection!

“It is time for the government, trade bodies and the media to step in and rescue the forgotten casualties of the doubling ground rent scandal. To fail to do so risks leaving thousands of hard-working people with flats that will be difficult, or even impossible, to sell in the future.”