Leasehold scandal: some homeowners to receive ground rent refunds and freehold discounts
Aviva and Persimmon have decided to offer concessions to leaseholders stuck in properties with escalating ground rents.
The Competition and Markets Authority (CMA) has announced that two of the biggest players in the leasehold industry have dedicated to changing their rules, and introducing refunds on unreasonable ground rents and reduced prices for people looking to purchase their freehold.
The regulator has also fired a warning to other developers and freehold investors that they have to follow or face law suit.
Aviva and Persimmon commit to making leasehold changes
Last September, the CMA started enforcement action against four housing developers, and today’s announcement marks the first formal resolve for eradicating unfair ground rents.
- Aviva has agreed to remove ground rent doubling clauses from all freeholds it owns. Ground rents will revert to and remain in the original amount charged once the home was sold, and homeowners is going to be refunded any extra money they’ve paid.
- Persimmon has agreed to offer individuals who own leasehold houses the option to purchase their freehold at a discount which reflects the total amount they expected when they bought the property. It will likewise make repayments with a homeowners who’ve bought freeholds, and it has agreed later on to provide more information to buyers up front.
The CMA says these agreements have been provided voluntarily and without admission of wrongdoing or liability.
Andrea Coscelli, chief executive from the CMA, said: ‘This is a real win for a large number of leaseholders – for too much time individuals have found themselves held in homes they can find it difficult to sell or been faced with unexpectedly high prices to buy their freehold.
‘Now, they can breathe a sigh of relief knowing things are set to alter for the better.’
CMA fires warning shot to developers and investors
The CMA says today’s announcements are just the start of its enforcement work, also it ‘expects other developers and investors to follow charge of Aviva and Persimmon’. It says those who fail to do so ‘can get to face legal action’.
The CMA will continue to research Countryside and Taylor Wimpey for using potentially unfair contract terms, and Barratt within the possible mis-selling of leasehold properties.
Several investment firms that purchased freeholds from developers are also under the microscope. Abacus Land, Adriatic Land and Brigante Properties continue to be investigated by the regulator.
How the government is overhauling the leasehold system
The government started consulting on overhauling the leasehold system in 2021, and captured it announced numerous proposals.
In addition to banning new houses from being sold as leasehold, the government brings forward plans to allow leaseholders to increase their leases for 990 years, abolishing their ground rent payments in the process.
An finance calculator will be designed to determine how much leaseholders should pay when extending leases or buying freeholds, potentially stopping freeholders quoting inflated prices.
Finally, the government would be to set up a ‘commonhold council’ when preparing for the widespread introduction of commonhold in the future.
Commonhold involves buyers of flats owning the freehold to their individual property and forming a management company with other residents within their block – thereby putting themselves in charge of service charges, and taking out the requirement for third-party freeholders and management companies.
Leasehold scandal: a timeline
Today's announcement marks another step towards issues with leasehold houses and punitive ground rents finally being addressed.
In June 2021, Which? published an explosive investigation in to the leasehold scandal, speaking to nearly 200 leasehold homeowners who faced spiralling costs – from ground rent doubling clauses to expensive permission fees.
- June 2021: Government launches consultation into banning new-build leasehold houses
- September 2021: Leasehold consultation closes
- December 2021: Government announces plans to ban leasehold new-build houses and lower onerous ground rents
- June 2021: Which? publishes its shocking findings around the leasehold scandal
- September 2021: Report claims nine in 10 leasehold buyers regret their purchase
- October 2021: Government launches second consultation into capping ground rents
- March 2021: Select committee requires an overhaul of the leasehold system (see our submission to the inquiry here)
- February 2021: CMA to take action on leasehold mis-selling
- July 2021: Leasehold house sales could finally be banned
- September 2021: CMA launches action against developers over mis-selling
- January 2021: Government brings forward plans to reform leasehold
