This morning the UK competition watchdog said it was launching enforcement action against Barratt, Countryside Properties, Persimmon and Taylor Wimpey believing the firms may have broken consumer protection law in relation to leasehold homes.
Its decision comes after the CMA uncovered troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling.
It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.
Alongside these issues, the CMA will also be looking further into ground rent increases based on the Retail Price Index and may take enforcement action should it find evidence of unfair practices.
In particular, the CMA is concerned 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.
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The CMA will also be investigating certain firms who bought freeholds from the developers and have continued to use the same unfair leasehold contract terms.
The CMA has now written to Barratt, Countryside, Persimmon, and Taylor Wimpey outlining its concerns and requiring information.
How the case proceeds will depend on the CMA’s assessment of the evidence.
Possible outcomes include legal commitments from house builders to change the way they do business, or if necessary, the CMA could take firms to court.
Andrea Coscelli, CMA chief executive, said: “It is unacceptable for housing developers to mislead or take advantage of homebuyers.
“That’s why we’ve launched today’s enforcement action.
“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.”
Taylor Wimpey said: “The board takes this very seriously and Taylor Wimpey will continue to fully cooperate with the CMA, provide the further information to be requested by the CMA in the coming weeks and work with them to better understand their position.
Barratt Developments said: “The Group is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation.”
Areas of concern:
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 freehold: people being misled about the availability of freehold properties. For example, the CMA found evidence that some 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 being misled about the cost of converting their leasehold to freehold ownership. When buying their home, 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 rents
- The use of unfair contract terms that mean homeowners have 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.
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