CMA warns developers after securing ‘landmark’ contract changes

CMA warns developers after securing ‘landmark’ contract changes

The Competition Markets Authority (CMA) has warned housing developers and investors they must review, and if necessary make changes to, their leaseholder terms or “they can expect to face legal action”.

Today (June 23) the competition watchdog said it has secured formal commitments from Aviva and Persimmon to change the terms in their leasehold contracts which were causing homeowners to pay excessive prices.

Aviva will now remove terms which caused ground rents to double, and repay those homeowners who saw their rents double.

Article continues after advert

Whilst Persimmon has said it will now allow leasehold house owners to buy the freehold of their home at a discounted price.

This win for the CMA, initiated by the UK government, followed the opening of enforcement cases into four major housing developers back in September after the CMA found “troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling”.

The regulator is also investigating several investment firms which bought a large number of freeholds from two of these developers using the same ground rent terms.

“For too long people have found themselves trapped in homes they can struggle to sell or been faced with unexpectedly high prices to buy their freehold,” said Andrea Coscelli, the CMA’s chief executive.

“Now, they can breathe a sigh of relief knowing things are set to change for the better.”

But Coscelli continued: “Our work isn't done. We now expect other housing developers and investors to follow the lead of Aviva and Persimmon. If not, they can expect to face legal action."

Historically, doubling clauses have caused ground rents to double every 10-15 years. This, in turn, can make it harder for homeowners to sell or mortgage their homes.

The UK’s housing secretary, Robert Jenrick, said doubling ground rents had “no place in our housing market”.

He added: "We have also introduced new legislation that will protect future homeowners by restricting ground rents in new leases to zero and I would strongly urge other developers to follow suit in amending their historic practices."

Persimmon’s change in allowing leaseholders to buy the freehold of their property at a discount comes after the CMA found owners were led to believe they could buy the freehold at a certain price.

Only later did they find out this price “had increased by thousands of pounds with no warning”, according to the CMA. Those who have already bought their freehold will receive a refund.

Persimmon has also said it will extend the timeframe prospective buyers are given to exchange contracts after reserving a property from 35 to 42 days.

This is in an effort to address concerns expressed by the CMA that the reservation period was  “too short and can pressure the buyer into making a decision”.

In a separate announcement made by the house builder itself, Persimmon said it would extend its existing Right to Buy scheme to cap the purchase price of a freehold at £2,000 until December 31, 2026. Those who have already acquired their freeholds will be reimbursed for the difference between the price paid and £2,000.