Competition watchdog investigates housebuilders over leasehold “trap”

The Competition and Markets Authority (the “CMA”) is opening enforcement cases focusing on four of the UK’s biggest housebuilders after uncovering evidence that buyers of leasehold properties were misled and charged excessive fees.

The CMA has written to Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey demanding information about how they operated. It is also telling other firms to review their policies.

The CMA’s investigation relates to the following areas:

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 the freehold: 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 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 must 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.

Escalating Ground Rent based on the Retail Price Index (RPI)

• 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.

What next?

It should not be assumed at this stage of the CMA’s investigation that the businesses under investigation have been involved in any or all of the outlined practices.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.

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.

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, referred to above as leasehold homes.

More information

Pinney Talfourd are experts in lease extensions and can advise you on changes to the law so you are given up to date advice.

Please do not hesitate to contact either Stephen Eccles by email or on 01708 463202 or Oliver-James Topping by email or on 01708 463227 should you wish to discuss anything further.

This article was written by Oliver-James Topping, Solicitor in the Residential Property Litigation at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of September 2020.