Taylor Wimpey plc – Half year report – 30 June 2017
Industry: real estate
3. Net operating expenses and profit on ordinary activities before finance costs (extract)
As announced at the AGM on 27 April 2017, we are taking measures which we believe will address our customers concerns regarding historical lease structures in an appropriate and fair manner. Our review has focused on a specific lease structure which provides that the ground rent doubles every 10 years until the 50th year, at which point the rent is capped. This lease structure was introduced by Taylor Wimpey in good faith in 2007 and was one of a variety of lease types used on new developments during that period until late 2011, when we stopped using them on new developments commenced after that date.
The doubling clauses are considered to be entirely legal and are clearly set out in the relevant lease documentation. In addition, when buying their Taylor Wimpey property, all customers received independent legal advice as part of the standard conveyancing process. In line with normal practice the relevant freehold reversions have been sold to a number of third parties over several years. On behalf of customers who acquired from, and remain the owners of a Taylor Wimpey leasehold properties which are subject to this specific doubling clause, we have already entered into negotiations with the respective owners of the majority of the freeholds with the objective of converting our customer’s leases to an alternative lease structure, focused on resolving concerns that have been raised by some customers regarding the mortgageability or saleability of properties with this lease type, with the Group bearing the financial cost of doing so. In the event that we are not able to reach agreement with individual freeholders, we will continue to pursue other avenues to help our customers. As a result of this review the Group has recognised an exceptional provision, before tax, of £130 million as at 2 July 2017.
This provision has been calculated using a range of assumptions including the total number of properties still owned by the original purchaser and an average valuation per leasehold unit. The outcomes of these assumptions made currently remain unknown and could vary over time. Assumptions will be regularly reviewed. However given the information available at 2 July 2017 it is considered that the provision announced at the AGM on 27 April 2017 of £130.0 million remains appropriate. We expect the cash outflow to be spread over a number of years; this will be determined by the outcome of the ongoing negotiations with the current freeholders of the properties and the timing of applications from customers.