Watchdog opens probe into leasehold practices Image: ceebeestock AdobeStock_207781879

CMA launches enforcement action involving leading housing developers

The Competition and Markets Authority (CMA) said today (4 September 2020) that it is opening enforcement action involving four leading housing developers it believes may have broken consumer protection law in relation to leasehold homes.

As part of its ongoing investigation, the opening enforcement cases focusing on certain practices of:

  • Barratt Developments
  • Countryside Properties
  • Persimmon Homes
  • Taylor Wimpey

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

It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers. 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.”

The CMA’s action relates to the following areas of concern:

Mis-selling

  • 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. A statement on the Barratt Developments PLC website said:

“Barratt Developments PLC (the ‘Group’) notes the announcement made by the UK Competition and Markets Authority (‘CMA’) that it is opening an enforcement case as part of its ongoing investigation in relation to the sale of leasehold homes. The Group is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation.”

A Countryside spokesperson said:

“We note today’s statement from the Competition and Markets Authority (CMA). 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 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.”

In a statement, Taylor Wimpey said:

“We note the announcement from the Competition & Markets Authority (CMA) that they are opening an enforcement case against Taylor Wimpey and other leading housing developers in connection with the sale of leasehold homes and potential breaches of consumer protection laws.

“The Board takes this very seriously and Taylor Wimpey will continue to fully cooperate with the CMA, provide the further information to be requested by the CMA in the coming weeks and work with them to better understand their position.”

People wishing to provide further evidence should contact the CMA

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.

Alongside its enforcement action, the CMA is also sending letters to a number of other developers. This is to encourage 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. This offers advice on a number of issues, including what people can do when faced with fees and charges they consider unjustified.

The CMA 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.

People wishing to provide further evidence regarding the companies named can get in touch via email leasehold@cma.gov.uk. The CMA is interested in hearing information on either leasehold houses and/or flats.