The Competition and Markets Authority (CMA) says it has found “troubling” evidence of potential mis-selling and unfair contract terms in the leasehold housing sector, and is set to launch enforcement action.
These concerns include:
- Ground rents: homeowners having to pay escalating ground rents, which in some cases can double every 10 years. This increase is often built into contracts, meaning people can often struggle to sell their homes and find themselves trapped.
- Cost of the freehold: the CMA has seen evidence that people have been misled about the cost of converting their leasehold to freehold ownership. When buying their home, some people were told the freehold would cost only a small sum, but later down the line this price had increased by thousands of pounds with little to no warning.
- Misleading information: not being told upfront that a property is leasehold and what that means. Some developers are failing to explain the differences between leasehold and freehold when directly asked, and some actually tell potential buyers that there is no difference. By the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or would face significant difficulties if they tried to do so.
- Unreasonable fees: being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements. If people want to challenge such charges, the process is often difficult and costly, meaning few people decide to go through with it.
Andrea Coscelli, the CMA’s chief executive, said: “We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.
“Buying a home is one of the most important and expensive investments you can make, and once you’re living there you want to feel secure and happy. But for thousands of leasehold homeowners, this is not the case.
“We’ll be looking carefully at the problems we’ve found, which include escalating ground rents and misleading information, and will be taking our own enforcement action directly in the sector shortly.”
The CMA is now completing all the necessary legal work to launch direct enforcement action against companies it believes have broken consumer protection law. This could result in firms signing legal commitments to change how they do business. If they fail to make the required changes, the CMA could take action through the courts to make them comply with the law.
Jackie Bennett, director of mortgages at UK Finance, said: “The inappropriate use of leasehold and the detrimental impact it can have on homeowners has been an area of concern for lenders.
“Leasehold is an appropriate tenure in the right circumstances, for example where properties have shared services or are built on land with specific restrictions but it’s crucial it works in the best interest of homebuyers, now and in the future
“It’s therefore good to see the CMA taking action where unfair practices have been identified.
“This sends a clear signal that the terms of leasehold should be clear and transparent and that leaseholders should be treated fairly.”
James Tarr, head of leasehold management at Andrews Property Group, added: “To anyone who manages leasehold developments the findings of the CMA probe into the industry will come as no surprise whatsoever.
“The sooner the leasehold sector becomes regulated, the better. That will solve a significant percentage of the problems that are occurring almost immediately. You need to have a situation where conveyancing solicitors and developers alike are obliged to spell out the full meaning of leaseholds, in plain English, before any transaction takes place.
“Whenever we take on a new development we always hold a residents’ meeting and explain the basics of leasehold and why the owners need to pay a service charge.
“There’s often a huge amount of confusion as to the difference between ground rent and service charges, and in some cases residents have been told they can even opt out of these charges.
“Everyone buying a leasehold flat needs to go in eyes wide open not, as currently happens all too often, eyes wide shut.”