The Competition and Markets Authority announced on the 4th September 2020 that it is taking enforcement action against four leading housing developers in relation to the sale of leasehold properties:
- Barratt Developments
- Persimmon Homes
- Taylor Wimpey
- Countryside Properties
The CMA have uncovered troubling evidence of potential mis-selling and unfair contract terms and are concerned that leasehold homeowners are being unfairly treated and that buyers have been misled by developers.
The CMA found:
- Ground rents: developers failing to explain clearly exactly what ground rent is, whether it increases over time, when increases will occur and by how much.
- Availability of freehold: people being misled about the availability of freehold properties. For example, the CMA found evidence that 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.
- Cost of the freehold: people being misled about the cost of converting their leasehold to freehold ownership. When buying their home, the CMA found evidence that some people were told the freehold would cost only a small sum, but later down the line the price had increased by thousands of pounds with little to no warning.
- Unfair sales tactics: developers using unfair sales tactics – such as unnecessarily short deadlines to complete purchases – to secure a deal, meaning people could feel pressured and rushed into buying properties that they may not have purchased had they been given more time.
Unfair contract terms – ground rents
- The use of unfair contract terms that mean homeowners have to pay escalating ground rents, which in some cases can double every 10 years. This increase is built into contracts, meaning people can also struggle to sell their homes and find themselves trapped.
Alongside these issues, the CMA will also be looking further into ground rent increases based on the Retail Price Index (RPI) and may take enforcement action should it find evidence of unfair practices in relation to these. In particular, the CMA is concerned about the fairness of escalating ground rent terms linked to RPI and that these are not always effectively explained by developers when discussing RPI-based ground rent with prospective homeowners.
The CMA will also be investigating certain firms who bought freeholds from these developers and have continued to use the same unfair leasehold contract terms.
The CMA has now written to Barratt, Countryside, Persimmon, and Taylor Wimpey outlining its concerns and requiring information.
How the case proceeds will depend on the CMA’s assessment of the evidence. Possible outcomes include legal commitments from the companies to change the way they do business, or if necessary, the CMA could take firms to court.
The BSA has been calling for action for many years and is pleased that this issue is being addressed by the CMA.
The full press notice can be found here
For people who own, or are looking to buy, a leasehold property, the CMA has produced written and video guidance which offers advice on a number of issues, including what people can do when faced with fees and charges they consider unjustified.