Four of the UK’s best-known house builders are under investigation by the Competition and Markets Authority (CMA) for potential breaches of consumer protection law in relation to leasehold homes.
And estate agents selling new homes on behalf of these developers may have reason to worry; the CMA’s Chief Executive Andrea Coscelli has said that “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 house builders involved are Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey.
Each of the developers are accused of four types of mis-selling activity in relation to leasehold homes as well as the use of unfair contract terms to charge leaseholders escalating ground rents.
The shocking mis-selling accusations include not explaining what ground rents are, telling buyers that properties are only available as leasehold when they were later sold as freehold, misleading buyers about the cost of converting leasehold to freehold at a later date and unfair ‘pressure sales’ tactics including short completion deadlines.
CMA investigators will also look at unfair contract terms that force homeowners to pay exorbitantly escalating ground rents, making it hard to sell homes and often doubling every ten years, and look at how those linked to the Retail Price Index (RPI) are explained to home buyers.
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.
Once the investigations are over, it will either seek legal commitments from the house builders to change their way or take them to court.
“It is unacceptable for housing developers to mislead or take advantage of homebuyers. That’s why we’ve launched today’s enforcement action,” says Coscelli.
Barratt is the only developer so far to respond the news, saying: “The Group is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation.”
“This was abusive corporate behaviour on a massive scale, and it is utterly shameful that professionals recommended by the plc house builders – solicitors and valuers – went along with it,” says Sebastian O’Kelly of the Leasehold Knowledge Partnership.
Mark Hayward, Chief Executive, NAEA Propertymark: “It’s promising to see the CMA is taking enforcement action against four house builders on the grounds of mis-selling and unfair contract terms in relation to leasehold homes.
“The NAEA Propertymark ‘Leasehold: A Life Sentence?’ report revealed three in five (62 per cent) leasehold property owners felt they were mis-sold and a further 93 per cent wouldn’t buy another leasehold property. This means that for too long house builders and developers have not been transparent enough about what it means to buy a leasehold property, leaving many in financial difficulty as they have become trapped in confusing contracts with their freeholder.”