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Housing developers face enforcement action over leasehold terms

Housing developers face enforcement action over leasehold terms

The competition watchdog has launched enforcement action over leasehold concerns and is investigating four leading housing developers after uncovering "troubling evidence" of potentially unfair terms and potential mis-selling. 

The Competition and Markets Authority (CMA) announced it planned to take action on issues in the leasehold housing sector earlier this year.

It has now started enforcement action focusing on the practices of Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey. It says it believes the developers may have broken consumer protection law relating to leasehold homes, though at this stage it is still investigating and it should not be assumed any of the firms have broken the rules. The CMA has demanded further information from the developers and, if necessary, could end up taking them to court.

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

What is a leasehold?

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.

What is the CMA investigating?

The CMA says its enforcement action relates to the following concerns (though it's stressed it shouldn't be assumed at this stage that the developers it has written to are involved in any or all of these practices):

  • Mis-selling ground rents, where developers don't clearly explain what ground rent is and whether it will increase over time – and if so, when and how much the increases will be.

  • Misleading customers about the availability of freehold properties, for example, people being told properties on a certain estate will only be sold as leasehold homes, but the properties are later sold as freeholds to other buyers.

  • Misleading customers about the cost of converting a leasehold to freehold ownership, for example, people being told when they buy their home that the freehold will cost a small amount – with the price later increasing with little warning, sometimes by £1,000s.

  • Using unfair sales tactics, such giving unnecessarily short deadlines to complete purchases, meaning customers could feel pressured into buying a property which they might not have bought otherwise.

  • Using unfair contract terms for ground rents, meaning homeowners have to pay escalating ground rents which are built into contracts – meaning some risk being unable to sell their home.

What happens next?

The CMA has written to Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey outlining its concerns and asking for more information.

What happens next will depend on how the CMA assesses the evidence it finds. But it says possible outcomes could include firms giving a legal commitment to change their business practices, or even being taken to court.

The CMA will also investigate firms which bought freeholds from these developers and continued to use the same leasehold terms.

Separately, the regulator says it is also writing to other developers – who it hasn't named – to ask them to review their practices and make sure they are treating their customers fairly and in line with consumer law.

It's also investigating ground rent increases based on the Retail Prices Index (RPI) and how they are explained to prospective homeowners by developers, and could start more enforcement action if it finds evidence of unfair practices.

What can I do if I have a problem with my leasehold?

There's no specific impact on customers of the four housing developers at the moment. But no matter who you've bought a home from, if you've problems with your leasehold there are steps you can take to resolve them. Even if you've properly vetted the terms of your lease before moving in, 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 What to do if you have a leasehold complaint for full help.

What does the CMA say?

CMA chief executive Andrea Coscelli 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."

What do the developers say?

A Barratt Developments spokesperson said: "We are committed to putting our customers first and will continue to co-operate with the CMA whilst it completes its investigation."

A spokesperson for Countryside Properties said: "We are committed to resolving this issue to the satisfaction of our customers and will continue to co-operate fully with the CMA's ongoing investigation."

Persimmon Homes' spokesperson said: "A proportion of our properties were sold on a leasehold basis in the past.

"Following consultation with Government, stakeholders and customers, we took the decision to stop selling leasehold houses where Persimmon owns the land freehold in 2017.

"Any customers of a Persimmon leasehold property in the last six years have been given the right to buy their lease at below market value and many have done so.

"We look forward to engaging fully with the CMA on this issue as they continue their investigation."

We have contacted Taylor Wimpey for comment, and will update this story when we hear back.