Leasehold scandal one year on: has anything really changed?

A year ago this month, Which? published a comprehensive investigation into issues with leasehold new-build homes, including soaring ground rent charges, punitive permission fees and developers selling freeholds behind homeowners' backs.

Now, 12 months and countless consultations later, homeowners trapped in unsellable and unmortgageable properties are still awaiting redress. But could a new investigation by the Competition and Markets Authority (CMA) help the tide to finally turn?

Leasehold houses: the big issues

In our investigation into the leasehold scandal, Which? cast a light on a whole host of issues with leasehold new-build houses. These included:

• Clauses which mean the annual ground rent doubles every 10 years, meaning a bill of a few hundred pounds a year would soon turn into many thousands of pounds. Many leaseholders claiming their developer's recommended solicitors never informed them of these clauses when they purchased their property.
• Developers selling off freeholds to third-party investment companies without informing the leaseholder, who should have have been given first refusal after two years of living in the property. Once freeholds have been sold on, homeowners have been quoted incredibly high prices to purchase them.
• Freeholders charging excessive 'permission fees' to allow leaseholders to make changes or renovations to their properties.
• Mortgage providers refusing to lend on leasehold homes with ground-rent-doubling clauses.

Doubling ground rents and freehold sales: Andrea's story

One of the stories we reported on in last year's investigation was that of Andrea Millward, who owns a leasehold house in Merseyside.

Andrea's lease is subject to a clause where the ground rent doubles every 10 years, meaning the original annual charge of £295 will rise to nearly £9,500 over the course of 50 years.

Like many leaseholders, Andrea believes she was mis-sold her property, a frustration that was worsened by Taylor Wimpey selling her freehold to a third party without telling her.

When we caught up with her earlier this week, Andrea told Which?: 'In the last year, we've tried both selling and letting out our house without any success.

'It's impossible to sell a property with a doubling clause, even at a lower price, and people who have converted their ground rent to RPI* are facing the same problem.

'We've also spoken to banks and an independent mortgage broker about switching to a buy-to-let mortgage and renting the property out, but lenders won't offer mortgages on houses with doubling clauses.

'A year ago we were considering moving abroad, but now we can't even move down the road.'

Taylor Wimpeytold Which? last year that all of its customers received independent professional legal advice when purchasing their properties and signing their leases.

It added that, whilst the specific advice received is confidential between customers and their lawyers, it would expect all solicitors to explain all aspects of the transaction, including the ownership structure of a property and any rent reviews.

The company also told us that it has always sold freeholds because 'the administrative structures needed to manage a portfolio of freehold interests are very different to a housebuilder's core business'.

_{*Some developers and freeholders have offered to increase leaseholders' ground rent in line with the Retail Prices Index (RPI), a measure of inflation, instead of doubling it every decade.Andrea turned down this offer as it would have meant waiving her right to make future claims against Taylor Wimpey. While Taylor Wimpey has stated this is only in relation to the ground-rent-doubling clauses, Andrea maintains that, in fact, it applies to anyfuture claims.}

Video: inside the new-build property trap

Leasehold reform: where are we now?

So far, the government has primarily focused on preventing new-build houses from being sold as leasehold in the future, and has proposed a cap on ground rents.

But in the past six months, after critical reports by the Law Commission and HCLG Select Committee, the focus seems to be shifting towards existing leaseholders.

In March, dozens of housebuilders signed a collective pledge put forward by the government, which required them to replace ground-rent-doubling clauses with increases linked to the RPI.

For many leaseholders who remain at odds with their developer over freehold sales and permission fees, this move has offered little respite. Indeed, many had already been offered the so-called 'deed of variation' in the past.

CMA investigates leasehold mis-selling

This month has seen the biggest breakthrough so far in the form of an announcement from the CMA that it will investigate mis-selling in the leasehold sector.

The investigation will focus on two key areas: potential mis-selling of leasehold properties (including ground rent clauses and the practices around freehold purchases) and unfair terms on leasehold homes (including permission fees and service charges).

The CMA is currently contacting developers, lenders and freeholders to gain more information on these issues, and says that if it finds consumers have been misled it could take enforcement action.

Leaseholders can submit information to the CMA until 12 July.

Leasehold reform: a timeline

• June 2019: CMA launches investigation into potential mis-selling of leasehold houses and unfair charges such as ground rent and permission fees.
• March 2019: government reveals collective industry pledge from housebuilders to do away with onerous ground rent clauses (replacing them with RPI). So far, 45 developers have signed the pledge.
• March 2019:HCLG committee publishes paper on leasehold reform. It claims the government can legislate to remove onerous ground rents. It also suggests introducing commonhold (an alternative to leasehold) in England and Wales, and invites an investigation into mis-selling.
• October 2018: government launches consultation into banning new houses being sold as leasehold and proposes ground rents on new leases are capped at £10.
• September 2018:Law Commission publishes consultation paper on how the process of buying a freehold and extending a lease can be improved.

You can find out more about how the system currently works in our guide to leasehold vs freehold, or if you're a leaseholder find out what is involved with extending a lease or buying a freehold.