The money-making revelations of John McCarthy, the founder of McCarthy & Stone

An Article on John McCarthy by the Leaseholder AssociationIn 1977 John McCarthy, a jobbing builder from New Milton, Hampshire, came upon his eureka moment. In his autobiography, ‘Building a Billion’ he recalls how he identified a niche market and the opportunity to “make more money than he had ever dreamed of”. His idea was to build blocks of retirement flats for the elderly. He calculated that in building smaller flats with far fewer parking spaces he could develop more properties per plot of land and see his way to a fortune, which he did. In 2006 McCarthy & Stone was sold for £1.1 billion.

It is said that these profits came at the expense of the elderly and vulnerable that purchased properties in good faith, only to find they were stuck with excessive charges in the print of their leases. Charges such as commission on insurance, high ground rent, rent for the warden’s flat, rent for the guest rooms and the sting in the tail, further excessive fees when the property is sold.

When McCarthy discovered he could sell ground rent income to investors at over 12 times the annual value he proceeded to set higher than normal ground rents and also added an unreasonable transfer fee, bringing in another 1% of the sales price every time a property changed hands.

By far the most damning charge of all was the scheme devised to collect rent from elderly owners for the use of the on-site warden’s flat. In the beginning no rent was usually charged. Its introduction was a potential problem because service charge payments under a lease are required by law to represent actual costs such as maintenance expenditure. The warden’s flats were already built into each development, as were the guest room, the lounge and the laundry, so there was no on-going cost other than maintenance as these facilities were already paid for. There was no justification for a further rent charge.

To overcome this potential obstacle McCarthy and Stone generated a lease for the warden’s flat and assigned it to a group-owned company, rent-free. This company, in turn, immediately leased it back at a highly inflated annual rent. Using this ‘lease back’ arrangement the company created a ‘cost’ where no real cost existed. McCarthy admits it took 2 years to convince his accountants Ernst & Young that it was ‘acceptable’.

McCarthy and Stone sold the income stream from all these annual charges to freehold investor companies such as Fairhold, ultimately controlled by the notorious Tchenguiz brothers from an offshore tax haven. As a consequence thousands of retired property owners are burdened with these unwarranted charges along with extortionate rents for scheme managers’ flats automatically taken from the annual service charges they pay.

We say “Enough is enough”

 On behalf of its members, The Leaseholder Association is now taking legal action to bring an end to the charges that are costing retired leasehold owners millions of pounds every year. If you would like your estate to benefit from this collective action we invite you to join us in this fight. With your support these charges can be challenged and can be stopped.

 Note: McCarthy & Stone have issued the following statement: –

 “We would like to make clear that John McCarthy resigned from McCarthy & Stone in 2003. McCarthy and Stone no longer operates these practices and has not done so for a number of years.”

 This is great news for new buyers but little comfort to owners with the earlier form of leases.

For further information contact us at