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4 Sep 2020

Competition watchdog launches action against developers over leasehold mis-selling

CMA gives court threat to Barratt, Countryside, Persimmon and Taylor Wimpey

The Competition and Markets Authority (CMA) has today launched enforcement action against four of the UK's biggest house builders over allegations of mis-selling leasehold homes.

The watchdog has opened proceedings against Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey, all of which it believes may have broken consumer protection laws.

Here, Which? explains why the CMA is taking action and what this move could mean for the future of leasehold housing.

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CMA launches action against developers

In February, the CMA published a scathing interim report, where it found 'worrying evidence that people who buy leasehold properties are being misled and taken advantage of'.

At the time, it said it would take enforcement action against companies involved in mis-selling and, if necessary, take legal action.

These enforcement proceedings are based on two key areas: the alleged mis-selling of leasehold homes and unfair contract terms.

The CMA says it has written to Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey asking for further information.

It says possible outcomes could include requiring legal commitments from the developers to change their terms or taking them to court.

What is the CMA investigating?

The watchdog says it has found evidence of the following possible breaches of consumer protection law:

Mis-selling of leasehold homes

  • Ground rents Developers are 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 Homebuyers being misled about the availability of freehold properties.
  • Cost of buying the freehold Buyers being misled about the cost of converting their leasehold to freehold ownership. 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 rent doubling clauses Homeowners being made 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.
  • Ground rents linked to RPI Concerns 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 says it will also be investigating some firms who bought freeholds from developers and have continued to use the same unfair leasehold contract terms.

Government and Law Commission action on leasehold

The CMA's findings echo the crippling problems with leasehold that we highlighted in our investigation back in June 2018.

Since then, the government has pledged to ban the selling of leasehold new-build houses with punitive ground rents, but has done little to offer redress to those already stuck with unsellable properties.

In July, the Law Commission recommended that leasehold be replaced with commonhold for flats.

It also said homeowners should be given greater rights to buy their freehold for an affordable price and ground rents should be set to zero. The government is considering these recommendations.

Our coverage of the leasehold scandal: a timeline