Competition watchdog launches action against developers over leasehold mis-selling
The Competition and Markets Authority (CMA) has today launched enforcement action against four of the UK’s biggest house builders over allegations of mis-selling leasehold homes.
The watchdog has opened proceedings against Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey, which it believes might have broken consumer protection laws.
Here, Which? explains why the CMA takes action and just what this move could mean for future years of leasehold housing.
CMA launches action against developers
In February, the CMA published a scathing interim report, where it found ‘worrying evidence that people who buy leasehold properties are being misled and taken advantage of’.
At time, it said it would take enforcement action against companies involved with mis-selling and, if necessary, take law suit.
These enforcement proceedings derive from two key areas: the alleged mis-selling of leasehold homes and unfair car loan terms.
The CMA says it's written to Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey requesting further information.
It says possible outcomes could include requiring legal commitments from the developers to alter their terms or taking these to court.
What is the CMA investigating?
The watchdog says it's found evidence of the next possible breaches of consumer protection law:
Mis-selling of leasehold homes
- Ground rents Developers are failing to explain clearly exactly what ground rent is, whether or not this increases over time, when increases will occur and by how much.
- Availability of freehold Homebuyers being misled about the availability of freehold properties.
- Cost of buying the freehold Buyers being misled concerning the price of converting their leasehold to freehold ownership. The CMA found evidence that many people were told the freehold would cost merely a small sum, but later down the road, the cost had increased by a lot of money with little to no warning.
- Unfair sales tactics Developers using unfair sales tactics – such as unnecessarily short deadlines to accomplish purchases – to secure a deal, meaning people could feel pressured and rushed into buying properties that they may not have purchased had they received more time.
Unfair contract terms
- Ground rent doubling clauses Homeowners being made to pay escalating ground rents, which in some cases can double every 10 years. This increase is made into contracts, meaning people may also struggle to sell their homes and discover themselves trapped.
- Ground rents associated with RPI Concerns about the fairness of escalating ground rent terms associated with RPI which these are not always effectively explained by developers when discussing RPI-based ground rent with prospective homeowners.
The CMA says it will likewise be investigating some firms who bought freeholds from developers and also have continued to make use of exactly the same unfair leasehold contract terms.
Government and Law Commission action on leasehold
The CMA’s findings echo the crippling problems with leasehold that we highlighted in our investigation in June 2021.
Since then, the federal government has pledged to ban the selling of leasehold new-build houses with punitive ground rents, but has done little to provide redress to those already stuck with unsellable properties.
In July, the Law Commission recommended that leasehold be replaced with commonhold for flats.
It also said homeowners should be given greater rights to buy their freehold for an reduced price and ground rents should be set to zero. The government is considering these recommendations.
Our coverage from the leasehold scandal: a timeline
- June 2021 Government launches consultation into banning new-build leasehold houses
- September 2021 Leasehold consultation closes
- December 2021 Government announces intends to ban leasehold new-build houses and lower onerous ground rents
- June 2021 Our investigation in to 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 calls for a change from 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
