PropertySep 4 2020

CMA cracks down on developers over leaseholds

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CMA cracks down on developers over leaseholds
Gareth Fuller/PA
ByImogen Tew

The competitions watchdog has pushed forward with its crackdown on leasehold practices, opening enforcement cases against four of the country’s giant housing developers.

The practices of Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey are under the microscope of the Competitions and Markets Authority after the regulator found “troubling evidence” of potentially unfair terms and misselling in leasehold contracts.

It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.

The CMA’s action relates to concerns over misselling, specifically over ground rents, the availability of freehold, the cost of the freehold and unfair sales tactics.

For example, the watchdog found evidence some people were told properties on an estate would only be sold as leasehold homes, when they were in fact later sold as freeholds to other buyers, and others had been told the freehold would cost only a small sum but later the price had increased by thousands of pounds.

It is also probing the use of unfair contract terms, which meant homeowners had to pay escalating ground rents which in some cases could double every 10 years.

The CMA said this resulted in owners struggling to sell their homes and finding themselves trapped, dubbed ‘leasehold prisoners’.

As part of the enforcement cases, the CMA will also look further into ground rent increases against inflation and will take action should it find evidence of unfair practices in relation to these, it warned.

Andrea Coscelli, CMA chief executive, said: "It is unacceptable for housing developers to mislead or take advantage of homebuyers. That's why we've launched today's enforcement action.  

"Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been mis-selling or unfair contract terms, these will not be tolerated."

The watchdog has written to Barratt, Countryside, Persimmon and Taylor Wimpey outlining its concerns and requiring further information.

The CMA opened its probe into leasehold practices last year after the “leasehold prisoner” scandal came to light in 2017, revealing homeowners were trapped in their homes due to rising ground rents.

In February this year, it threatened to take housebuilders to court after its investigation found evidence of misselling, onerous contracts and ever increasing ground rents.

A leasehold is a method of owning property but not the land on which it stands whereas freehold leases grant outright ownership of the property and the land on which it stands. 

The CMA said it would continue to work with the government on its reform plans for the leasehold market, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.