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Competition watchdog to take action on leasehold selling

Competition watchdog to take action on leasehold selling

The competition watchdog says it has found evidence of potential mis-selling and unfair contract terms in the leasehold housing sector, and is set to launch enforcement action.

The Competition and Markets Authority (CMA) says its investigation has found "worrying evidence" that people who buy leasehold properties are being misled and taken advantage of.

When buying a property in England or Wales there are two main types: freehold and leasehold. Unlike a freeholder, as a leaseholder you do not own the land the property is built on and essentially rent it from the freeholder for a period of time set out within the lease. This can be years, decades or centuries. 

One of the issues with this is that due to clauses in some leases, thousands of leaseholders have to pay ground rents to their freeholder that double in cost at intervals of 10 years (or sometimes more regularly). This means rental fees can spiral unexpectedly for leaseholders not aware or not fully informed of the details of a lease.

Now the CMA says it is completing the necessary legal work to launch direct enforcement action against a number of unnamed companies it believes have broken consumer law. It adds this could result in firms signing legal commitments to change how they operate.

If they then fail to make these changes, the CMA could take court action to make them comply with the law.

See our What is a leasehold? guide for info on your rights and the current ground rent scandal.

What issues has the CMA found?

As part of its probe, the CMA has raised the following issues:

  • Homeowners having to pay escalating ground rents. The CMA says these increases are often built into contracts, meaning people can often struggle to sell their homes and find themselves trapped.

  • People being misled about the cost of converting their leasehold to freehold ownership. The CMA says it has found evidence that some people have been told when buying their home that the freehold would cost only a small sum, only for the price to increase by thousands of pounds later, with little to no warning.

  • Buyers not being told upfront that a property is leasehold and what that means. The CMA says that some developers are failing to explain the differences between leasehold and freehold when asked, and some actually tell potential buyers that there is no difference. It adds that by the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or would face significant difficulties if they tried to do so.

  • People being charged excessive and disproportionate fees. It says these fees are being charged for things like the routine maintenance of a building's shared spaces or making home improvements. The CMA adds that if people want to challenge such charges, the process is often difficult and costly, meaning few people decide to go through with it.

What else is being done to help leaseholders?

Aside from completing the legal work it needs to launch direct enforcement action against companies it believes have broken consumer protection law, the CMA says its findings support the case for changes to the law. It says it will 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.

It says it is also developing consumer advice for people who own, or are looking to buy, a leasehold property, which will offer tips on what they can do when faced with permission fees and service charges they consider unjustified.

I'm a leaseholder – how can I complain?

Even if you've properly vetted the terms of your lease before moving in, you may still run into issues. There are any number of things that could trigger a dispute with your freeholder and all of them could be grounds for you to complain.

As a leaseholder you have a right to gain information about your service charge and any insurance paid, know the name and address of your freeholder, be consulted about certain maintenance and running costs and challenge certain charges under some circumstances.

Some common causes of disagreement include high service or administration charges, high cost of buildings insurance and a breach of the lease's terms.

It's worth noting that your freeholder may have appointed a managing agent to act on its behalf. Unless your complaint is specifically about the managing agent, you may wish to complain to the freeholder in the first instance.

See the What to do if I have a complaint section of our What is a leasehold? guide for full info on what you should do to make a complaint.

What does the CMA say?

CMA chief executive Andrea Coscelli said: "We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.

"Buying a home is one of the most important and expensive investments you can make, and once you're living there you want to feel secure and happy. But for thousands of leasehold homeowners, this is not the case.

"We'll be looking carefully at the problems we've found, which include escalating ground rents and misleading information, and will be taking our own enforcement action directly in the sector shortly."