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23 Jun 2021

Leasehold scandal: some homeowners to receive ground rent refunds and freehold discounts

CMA claims 'real win for thousands of leaseholders' with escalating ground rents
unfinished new-build houses on building site

Aviva and Persimmon have agreed to offer concessions to leaseholders stuck in properties with escalating ground rents.

The Competition and Markets Authority (CMA) has announced that two of the biggest players in the leasehold industry have committed to changing their rules, and introducing refunds on unreasonable ground rents and discounts for people looking to buy their freehold.

The regulator has also fired a warning to other developers and freehold investors that they must follow suit or face legal action.

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Aviva and Persimmon commit to making leasehold changes

Last September, the CMA started enforcement action against four housing developers, and today's announcement marks the first formal commitment to eradicating unfair ground rents.

  • Aviva has agreed to remove ground rent doubling clauses from all freeholds it owns. Ground rents will revert to and remain at the original amount charged when the home was sold, and homeowners will be refunded any additional money they've paid.
  • Persimmon has agreed to offer people who own leasehold houses the option to buy their freehold at a discount which reflects the amount they expected when they bought the property. It will also make repayments to some homeowners who've bought freeholds, and has agreed in future to offer more information to buyers up front.

The CMA says these agreements have been provided voluntarily and without admission of wrongdoing or liability.

Andrea Coscelli, chief executive of the CMA, said: 'This is a real win for thousands of leaseholders - for too long people have found themselves trapped in homes they can struggle to sell or been faced with unexpectedly high prices to buy their freehold.

'Now, they can breathe a sigh of relief knowing things are set to change for the better.'

CMA fires warning shot to developers and investors

The CMA says today's announcements are only the start of its enforcement work, and it 'expects other developers and investors to follow the lead of Aviva and Persimmon'. It says those who fail to do so 'can expect to face legal action'.

The CMA will continue to investigate Countryside and Taylor Wimpey for using potentially unfair contract terms, and Barratt over the possible mis-selling of leasehold properties.

Several investment firms that purchased freeholds from developers are also under the microscope. Abacus Land, Adriatic Land and Brigante Properties continue to be investigated by the regulator.

How the government is overhauling the leasehold system

The government started consulting on overhauling the leasehold system in 2017, and earlier this year it announced a number of proposals.

In addition to banning new houses from being sold as leasehold, the government will bring forward plans to allow leaseholders to extend their leases for 990 years, abolishing their ground rent payments in the process.

An online calculator will be created to determine how much leaseholders should pay when extending leases or buying freeholds, potentially stopping freeholders quoting inflated prices.

Finally, the government is to set up a 'commonhold council' in preparation for the widespread introduction of commonhold in the future.

Commonhold involves buyers of flats owning the freehold to their individual property and forming a management company with other residents in their block - thereby putting themselves in control of service charges, and removing the need for third-party freeholders and management companies.

Leasehold scandal: a timeline

Today's announcement marks another step towards issues with leasehold houses and punitive ground rents finally being addressed.

In June 2018, Which? published an explosive investigation into the leasehold scandal, speaking to nearly 200 leasehold homeowners who faced spiralling costs - from ground rent doubling clauses to expensive permission fees. You can find out more in the following stories we've covered since 2017: