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Regulator to investigate housing developers over ‘unfair’ leaseholds

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The Competition and Markets Authority said it is 'unfair for housing developers to mislead or take advantage of homebuyers'
Regulator to investigate housing developers over ‘unfair’ leaseholds

The Competition and Markets Authority (CMA) is launching an investigation into four major housing developers it believes may have broken consumer protection law over leasehold homes.

The regulator is opening enforcement cases on Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey.

The CMA uncovered evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling.

It noted concern that leasehold homeowners may have been ‘unfairly treated’ and that ‘buyers may have been misled by developers’.

Homebuilders probed

The CMA said it is looking into the following five areas of concern:

  • 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: 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.

It will also be investigating ground rent increases based on the Retail Price Index (RPI) and may take enforcement action if it finds evidence of unfair practices in relation to these.

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.

“Alongside its enforcement action, the CMA is also sending letters to a number of other developers, encouraging them to review their practices to make sure they are treating consumers fairly and complying with the law.”

For people who own, or are looking to buy, a leasehold property, the CMA has produced written and video guidance, which offers advice on what people can do when faced with fees and charges they consider unjustified.

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