Housebuilder Taylor Wimpey sets aside £130m for leasehold 'scandal'

Taylor Wimpey (LSE: TW.L - news) has set aside £130m as it moves to tackle the fallout from controversial leasehold contracts agreed with customers.

The company used a statement to investors ahead of its AGM to confirm that a review of lease agreements it drew up over the past decade had resulted in "unintended financial consequence".

It promised negotiations with the owners of freeholds to ease pressure on the leaseholders of flats and homes built by the company.

It arose from a contract clause that allows a doubling in ground rent charges every 10 years.

Not only has it proved a financial burden, but it has also left many occupants trapped in the properties because the freeholds were able to be sold to other private companies - putting potential buyers off.

Those who have investigated the possibility of buying freeholds from them are said to have faced high premiums alongside extra costs for wanting to make alterations, while others have reported difficulties securing a mortgage.

The housing minister Gavin Barwell last year threatened Government action unless the industry stopped sales of leasehold houses, with MPs (BSE: MPSLTD.BO - news) describing the situation as a "national scandal".

Taylor Wimpey said in its statement: "This lease structure was introduced by Taylor Wimpey in good faith in 2007.

"It is clear from our review that the impact of these doubling rent review clauses is now causing some of our customers understandable concern.

"We acknowledge that the introduction of these doubling clauses was not consistent with our high standards of customer service and we are sorry for the unintended financial consequence and concern that they are causing."

The company said that in the event it was unable to bring down the ground rent bills, it would pursue "other avenues", but gave no further information.

It announced the action while warning that the looming General Election risked hitting demand in the market.

Chief (Taiwan OTC: 3345.TWO - news) executive Pete Redfern said: "We've had a good start to 2017, with positive customer demand and good mortgage availability supporting a strong sales rate.

"We remain well positioned to make further progress in 2017 which supports us in our strategy to deliver sustainable growth and returns through the cycle.

"In previous election periods, we have seen a slowdown in the housing market as customers pause before making major financial decisions like buying a home.

"We are optimistic that in 2017, assuming no major policy changes, the upcoming General Election will not disrupt this positive market sentiment.

"Our review of leases with ten year doubling ground rents is now complete and, following conversations with freeholders and lenders, we are today announcing measures which will address our customers' concerns in an appropriate and fair manner.

"Whilst there is a financial cost to the group related to this course of action, we confirm that our dividend targets and land investment programme are not impacted".