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Competition watchdog takes enforcement action against four major house builders
Four major house builders are facing enforcement action by the competition and markets regulator over the mis-selling of leasehold homes.
The Competition and Markets Authority (CMA) believes that Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey may have broken consumer protection laws and treated leasehold homeowners unfairly.
It has launched enforcement cases against the leading national developers as part of its investigation into the ground rents scandal, which hit headlines in 2016.
Unfair leasehold contract terms mean some buyers of new homes have to pay ground rents that double every 10 years and, as a result, encounter difficulties selling their properties later on.
Andrea Coscelli, chief executive of the CMA, 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.”
The CMA said it has also uncovered “troubling evidence” that ground rents were not properly explained to potential buyers and that some were misled about how much it would cost to convert to freehold, with prices increasing by thousands without warning.
People were also misled about whether they could buy homes as freehold. Some were told that properties on an estate would be sold only as leasehold, while neighbouring homes were later sold as freehold to other buyers, the regulator said.
Unfair sales tactics saw developers give potential buyers unnecessarily short deadlines to complete purchases, meaning people could feel pressured into deals, it added.
The cases could result in the four developers being taken to court by the CMA.
Other developers are also being contacted by the CMA and encouraged to review their leasehold practices to ensure they are not breaking the law.
The CMA will also be investigating firms that bought freeholds from the four developers and continued to use unfair leasehold contract terms.
It pledged to look further into Retail Price Index (RPI)-linked ground rent increases and warned that enforcement action may be taken where unfair practices are found.
Escalating ground rent terms tied to RPI are not always effectively explained to prospective buyers, the CMA said, adding that it has concerns about fairness.
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Housing secretary Robert Jenrick said: “Shameful practices of the kind set out by the CMA have no place in our housing market and we are going to put an end to them.
“The government asked the CMA to conduct this investigation and I strongly welcome the action to tackle mis-selling in the leasehold sector and want to see homeowners who have been affected by crippling ground rents swiftly obtain the justice and redress they deserve.
“Developers and freeholders must rectify the problems and ensure these disgraceful practices never happen again.
“We will be introducing legislation to restrict ground rents in new leases to zero and outlaw new leasehold houses.”
Ministers proposed banning leasehold houses and reducing ground rents to zero in July 2017, but legislation has not yet been tabled.
Responding to the CMA’s action, a spokesperson for Barratt said: “We are committed to putting our customers first and will continue to co-operate with the CMA whilst it completes its investigation.”
A spokesperson for Countryside said: “We are committed to resolving this issue to the satisfaction of our customers and will continue to co-operate fully with the CMA’s ongoing investigation.”
Persimmon said: “Following consultation with government, stakeholders and customers we took the decision to stop selling leasehold houses where Persimmon owns the land freehold in 2017.
“Any customers of a Persimmon leasehold property in the last six years have been given the right to buy their lease at below market value and many have done so.
“We look forward to engaging fully with the CMA on this issue as they continue their investigation.”
Taylor Wimpey said: “The board takes this very seriously and Taylor Wimpey will continue to fully co-operate 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.”
Leasehold Knowledge Partnership, a charity which supports leaseholders, said: “For years were saying that PLC house builders were ripping off their own customers with predatory ground rents and other games with leasehold tenure, and now the Competition and Markets Authority agrees with us and is taking enforcement action.
“What about the people who bought these flawed homes and now cannot sell them, or they are worth markedly less than what they paid for them?”
Update: at 4.46pm 04/09/20 a comment from Leasehold Knowledge Partnership was added to the story.
