“Persimmon chair resigns over chief executive’s ‘obscene’ £128m bonus”: “corporate looting”

£128m bonus =
427 homes at £300,000 or
512 at £250,000
– just saying …

The chair of Persimmon has resigned over his role in orchestrating a £128m bonus for the housebuilder’s chief executive, Jeff Fairburn, that will begin paying out on New Year’s Eve.

Nicholas Wrigley, the company’s chair and a former banker, said he regretted not capping the bonus scheme and was leaving “in recognition of this omission”.

The Guardian understands Wrigley had put pressure on Fairburn to donate some of his bonus to charity, although Persimmon declined to comment.

The bonus scheme – believed to be the most generous ever in the UK – is due to start paying out more than £800m to 150 senior staff on 31 December. The payouts are linked to the company’s stock market performance, which has been significantly boosted by the government’s help to buy scheme.

Persimmon’s share price has more than doubled since George Osborne introduced help to buy in 2013. About half of Persimmon homes sold last year were to help-to-buy recipients, meaning government money helped finance the sales.

The bonuses have been widely criticised by politicians, charities and corporate governance experts contacted by the Guardian this week. One expert described the bonuses as “corporate looting”, while another said directors had their “hands in an open cookie jar”.

Vince Cable, the leader of the Liberal Democrats, said the “scale of this bonus is obscene” and built on a “government subsidy”.

“It is reminiscent of the worst excesses of corporate greed that helped to create the financial crisis, when short-termism was heavily incentivised and long-term planning ignored,” he said.

“This is also a perverse situation where a corporate fortune has been built on what is essentially a government subsidy in help to buy. This situation shows just why help to buy is so flawed: it fuels demand rather than supply, putting house prices even further out of reach of young people, while adding zeros to the bank balances of housebuilding executives.”

Homeowners trapped by ‘fleecehold’ – the new cash cow for developers
Fairburn is due to collect the first £50m worth of bonus shares on 31 December. The scheme, which is based on the level of dividend returned to shareholders, was meant to take 10 years to pay out, but the company has accelerated dividend payments.

This means Fairburn, other executives and more than 100 middle managers are likely to collect all of the £800m worth of shares by July 2018, far ahead of the 2021 schedule.

The top three Persimmon bosses are due to collect more than £230m from the scheme, which was worth 9% of the entire company when it was created.

John Hunter, the chair of the UK Shareholder Association, which represents small investors, said the bonus scheme was “completely ridiculous” and was based solely on the dividend payments.

“Any bloody fool can pay dividends – it’s just paying them their own money. The scheme is doing the opposite of what it is meant to do – incentive performance and retention,” Hunter said.

“How does this incentive people when they’re all sitting on fortunes? If you’re a manager and you’re getting millions you’d retire on the spot.”

Hunter said Persimmon defends the scheme, which was approved by 85% of investors in 2012, as a reflection of the company’s strong performance and the billions of pounds it has returned to investors through dividends.

“It has done brilliantly well – with our money,” he said. “Help to buy has been almost a license to print money – our money. These bonuses are being subsided by us. All building companies have made a lot of money from help to buy, a government subsidy. We, the voters, have subsidised these payments to directors.”

He added: “I don’t blame directors for putting their hands in an open cookie jar – they are only human. The question here is how this scheme ever got approved.”

Jonathan Davie, Persimmon’s senior independent director and chair of the renumeration committee, which sets company pay, also resigned on Thursday.

“Nicholas and Jonathan recognise that the 2012 LTIP [long-term incentive plan] could have included a cap,” the company said in a statement. “In recognition of this omission, they have therefore tendered their resignations.”

Davie resigned with immediate effect. Wrigley will stay on until his successor has been appointed. …”

Naughty Persimmon

“A national housebuilder has been ordered to stop construction on one of its developments.

Plymouth City Council has issued a 28-day “temporary stop notice” to Persimmon Homes because it’s breached weekend working hours at its Saltram Meadow development on the former Plymstock Quarry site. …”

http://www.bbc.co.uk/news/live/uk-england-devon-42266659

Another new-build developer scam

Estate rent charges apply in Cranbrook:

Thousands of homeowners on private estates are facing unregulated and uncapped maintenance fees, amid allegations that developers have created a cash cow from charging for communal areas not maintained by the council.

Management contracts for “unadopted” private estates are frequently sold off to speculators and property management companies in the same way as freeholds and ground rents – leaving homeowners with spiralling fees and nowhere to turn.

If a new-build estate is “unadopted” it means communal areas such as roads, grass verges, pavements and playgrounds are retained by the developer. The developer then usually sub-contracts day-to-day management.

These companies then pass on the costs to homeowners (both freeholders and leaseholders) via a deed of transfer which obliges the homeowner, under the Law of Property Act 1925, to pay for maintenance of this land. This is often referred to as an “estate charge” or “service charge”. These are on top of full council tax – even though the council doesn’t maintain their street.

Critics say the system is open to abuse because management companies have no obligation to keep costs down or provide evidence the services they charge for are being carried out. Buyers may find the bills spiral as soon as a management contract is sold on.

Lynn Myers bought her two-bed leasehold house in Penrith, Cumbria, from developers Persimmon in September 2016. The sales agent told her the estate would be managed by Carleton Meadows Management Company with an estate charge of £100 a year per household for grass cutting.

When Gateway Property Management took over in July 2017 it tripled the fee to £308 a year – that’s £17,000 from the 55 residents. Myers alleges that the fee includes more than £3,000 “postage”.

“I am on a lower-end income and ploughed my late husband’s insurance money into this property,” says Myers. “I worry that I will be unable to afford this on top of full council tax etc, and also I will be unable to sell. I have been mis-led by Persimmon and the government.”

Persimmon says the initial costs had been miscalculated and that it was working with Gateway to resolve the issue.

Meanwhile, 40 miles away across the Lake District, residents in Church Meadows in Great Broughton are in a similar situation. Richard Elsworth moved into his Persimmon-built freehold property in May 2013. The estate’s 58 residents each pay Gateway a service charge of £125.53 a year, amounting to £7,281 to maintain about 600 square metres of grass.

But Gateway’s charges don’t stop there. When Elsworth’s neighbours sold their home, they were charged £360 for a “management pack” for the buyer, plus £144 for a deed of covenant.

“The only part of the pack that is relevant to the sale is a financial statement so that the service charge information is available to the prospective buyer. As the properties are freehold, Gateway has no responsibility whatsoever for the conveyancing process, other than to receive a deed of covenant from the conveyancing solicitors,” says Elsworth.

Gateway claims it provided an “often exhaustive” amount of information to purchasers’ solicitors when a sale takes place. It said it was common practice for managing agents to charge fees for sales packs and additional legal documentation. It says: “The information we are asked to provide varies from development to development and this is reflected in the amount we charge ranging from £150-£300 plus VAT.

“It is best-practice for the information to be prepared by professionally qualified staff because purchasers are reliant on information being accurate to enable the sale to proceed as smoothly as possible. Typically, a sales pack contains in excess of 25 pages and is tailored to the development.”

Privates estates were debated in parliament earlier this month. Kelly Tolhurst, Conservative MP for Rochester and Strood in Kent, told MPs how homeowners in Hoo bought from Taylor Wimpey and Bellway but are now in dispute with their property management company, SDL Bigwood.

Tolhurst went on to criticise Hyde Housing Association, and London and Quadrant. The latter tried to charge residents at Lodge Hill, Chattenden, for street lamps and street cleaning undertaken by Medway Council.

The Homeowners’ Rights Network (Hornets) is the campaign group fighting for a fairer deal for homeowners on private estates. Its main issue is a lack of a cap on charges and that homeowners don’t have a choice of provider. And, if homeowners have a dispute, there’s no resolution service in place.

Cathy Priestley, spokesperson for Hornets and a freeholder on a private estate, says the private estate model seems to be the norm for new-build estates. “We can only speculate as to why this has happened. The main benefactors are the plc developers who get to keep the estate land, don’t have to prepare it to adoption standards and don’t have to pay for its maintenance or the commuted sums for adoption,” she says. “All councils have to do, under planning, is to ensure there is a long-term sustainable arrangement to maintain the land (under the Town and Country Planning Act). They seem to readily accept assurances from the developers that the management company will deliver this. They don’t appear to have thought about how this affects homeowners.”

While leasehold owners have some (albeit limited) statutory protection, freeholders have very few options. They can take cases to court, but this can be expensive and time consuming. If they decide to simply not pay, they can ultimately lose their home. “Any arrears will normally be recoverable as a debt claim in the county court.

“However, homeowners should be cautious as the rent charge owner may have a number of options including the ability to take possession of the property,” says Adrian McClinton, associate solicitor at Coffin Mew.”

https://www.theguardian.com/money/2017/dec/02/homeowner-freehold-management-fees-unadopted?CMP=Share_iOSApp_Other

“Housebuilder Persimmon’s boss in line for ‘outrageous’ £50m shares windfall despite Theresa May’s crackdown on fat-cat pay”

“The boss of one of Britain’s biggest housebuilders is in line for an ‘outrageous’ £50 million New Year shares windfall despite Theresa May’s crackdown on fat-cat pay.

Persimmon’s chief executive Jeff Fairburn will next month pocket the first chunk of a share bonus worth a total of about £130 million at the current share price, The Mail on Sunday can reveal.

The Persimmon incentive scheme, which will see 150 managers share a bonus pot of more than £800 million, is likely to make Fairburn the best-paid FTSE 100 chief executive. … “

http://www.thisismoney.co.uk/money/news/article-5116833/Persimmon-boss-set-outrageous-50m-shares-windfall.html

A new problem for new house buyers: flying freeholds

“Simon and Maggie Dancer were ready to exchange and complete on the sale of their house when the bombshell dropped. The conveyancing had uncovered the fact that Linden Homes, which had built the Buckinghamshire estate where they live, had miscalculated the boundaries of their home – and that meant their neighbour owned half their master bedroom. …

… Their neighbours, James and Katrina Inch, are unable to rejoice in their unexpectedly expanded floorspace, for the error makes their home also unsaleable. “We are astonished by how this mistake could have been overlooked by three separate solicitors – our own, our neighbours’ and Linden’s – when we bought the properties,” says James Inch, who was alerted to the issue by the Dancers.

… Extraordinarily, two more residents on the ironically named Exemplar Park estate in Aylesbury are in the same predicament. Ann and Terry Payne checked their deeds after the Dancers contacted them and discovered that their neighbour, Clare Reeve, effectively owns half of their main bedroom.

Like the Dancers and Inches, their homes are link-attached over a shared driveway to the parking area. The room above the gateway should belong to the Paynes, but an error bestows it on Reeve. Slipshod markings have also granted Reeve ownership of a large traffic island in front of the houses. “I am going through a divorce and am trying to sell, but I can’t while the boundaries are in dispute,” says Reeve. “You’d think Linden would have got in touch when it came to light, but I’ve had no word.”

The Paynes have been told by Linden Homes to get the original conveyancing solicitor to sort it out. And it appears unabashed by the fiasco, blaming the families and their solicitors for not noticing the mistakes when they bought. …

… Alarms ought to have been triggered by the very existence of a “flying freehold”. It is a legal grey area that can cause headaches because of potential problems with gaining access across the neighbour’s portion to carry out repairs or enforce covenants. Some mortgage lenders steer clear of such properties which can be difficult to sell on.

… A flying freehold caused an identical issue for Colchester homeowner Samantha Sweeney, who found herself unable to sell her link-attached house. She discovered that her neighbour owned 90 square feet of her 11-year-old property, including half her bedroom which overhangs a shared driveway between the two houses.

The estate had been built by Persimmon which told the Observer: “We worked closely with the resident and this has now been resolved.”

All the residents of Exemplar Park can lodge a formal complaint with their solicitors who missed the crucial anomalies and, if they don’t achieve a resolution, they can appeal to the Legal Ombudsman.

Linden Homes says that its legal team is working on a deed of rectification to correct and realign the development’s boundaries, but the delays have cost the Dancers dear. Their daughter starts school next year and they have to move by January in order to meet the deadline for school applications. They also want to be settled before their baby is born. “I’ve had to pay for new valuations and cancel my daughter’s place at the nursery where she was due to start in September after we’d relocated,” Simon Dancer says. “And Linden is moving in baby steps. As far as it’s concerned it sold the house four years ago and couldn’t care less. …”

https://www.theguardian.com/money/2017/nov/26/house-problem-neighbours-own-half-bedroom-boundaries-wrong

“Help to buy has mostly helped housebuilders boost profitsl

“The chancellor, Philip Hammond, is lining up another £10bn to extend the “help to buy” programme first launched by George Osborne in 2013, which has already sucked up £10bn of taxpayers’ cash. Yet a report from Morgan Stanley – not usually the type to stick the knife into a flagship government policy – lays bare how this colossal sum has been almost entirely wasted.

Those billions have not helped buyers. The money has gone almost entirely into the pockets of the giant housebuilding firms, which have raised the price of developments by almost exactly the amount made available by the government. All it has meant for first-time buyers is more misery – by pushing up house prices.

Help to buy works by giving aspiring homeowners an interest-free government loan worth up to 20% of a property’s value – if the buyer opts for new-build. The idea was that it would provoke a wave of new building.

But the Morgan Stanley report, headlined “The help to buy premium – and its unintended consequences”, drily unpicks the data, revealing how the beneficiaries have been the major developers. Researchers compared the price of new-build houses in 2013, when the scheme began, with the price of existing or “second-hand” houses.

There has always been a small premium for new-build; people will pay extra for spanking-new kitchens and bathrooms. But since 2013, that premium has rocketed. “The divergence between new-build and second-hand prices is higher than it’s been since records began,” says the report.

It says that the price of new-build has outstripped second-hand by 15% since the start of help to buy. “We are now around 5% points away from the level at which new-build prices have diverged by the full amount of the government’s equity loan (20% of house price across England).”

Of course, Morgan Stanley didn’t produce this report for the likes of me to make a dig at the government. Its interest is in the share prices of the major housebuilders. It worries that the big builders won’t be able to get away with charging a premium of more than 20% for new-builds, and that the super- profits may be coming to a close.

Make no mistake about just how much help to buy has fuelled developers’ profits. The new-build market is increasingly reliant on help to buy, with the large builders – Barratt, Taylor Wimpey, Persimmon – suggesting that about half of their volumes are help-to-buy purchases. And what a brilliant money-making wheeze it has been. Morgan Stanley says: “Help to buy (and broader house price inflation, among other things) have helped housebuilder earnings triple since its launch.”

The builders will say the scheme has, indeed, provoked some supply, but evidence is thin. Morgan Stanley says: “Though it has helped drive supply, figures provide ammunition for critics who suggest it has pushed up prices, rather than making them more affordable.”

Despite this, Hammond is preparing to bung another £10bn at the developers – perhaps to “give clarity and certainty” about the scheme – which even the rightwing Adam Smith Institute says is “like throwing petrol on to a bonfire”.

But George Osborne didn’t need investment banks or thinktanks to tell him this back in 2013 when he launched this madness. Guardian Money at the time spoke to the people at the sharp end: young people excluded from the property market. Duncan Stott of the PricedOut group was particularly prescient: “Help to buy should really be called ‘help to sell’, as the main winners will be developers and existing homeowners who will find it easier to sell at inflated prices. Pumping more money into a housing market with chronic undersupply has one surefire outcome: house prices will go up.”

But the government chooses to listen to the developers instead. Britain’s housing market is broken, and help to buy is just making it worse.”

https://www.theguardian.com/money/blog/2017/oct/21/help-to-buy-property-new-build-price-rise