The leasehold homes scandal intensifies as CMA pursues enforcement action against private housing developers

Leasehold Homes Scandal Intensifies

The leasehold homes scandal continues as the Competition and Markets Authority (CMA) launches enforcement action against four leading housing developers it believes may have contravened consumer protection law during the sale of leasehold homes.

What are the CMA’s concerns in respect of the sale of leasehold homes?

The CMA’s concerns are:

• Leasehold homeowners having to pay excessive escalating ground rents. These increases may leave owners struggling to sell or mortgage their homes. The ground rents may reach levels where the leases qualify as assured tenancies under the Housing Act 1988, which can leave the owners vulnerable to losing homes. The CMA also expresses concerns about ground rents that increase in line with the Retail Prices Index (RPI).

• Developers misleading buyers about the cost of buying the freehold of leasehold homes, with some buyers initially told that acquiring the freehold of their leasehold house would cost only a small sum, when the price quoted later was thousands of pounds.

• Developers misleading people about the interest they were buying and the nature of leaseholds. The CMA says that some buyers were not told about the differences between freehold and leasehold ownership and in certain instances, they were even told that there was no difference.

• Excessive and disproportionate fees charged for items such as the routine maintenance of a building's shared spaces or consents for home improvements. The process for challenging these charges is often difficult and costly.

Who is the enforcement action against?

On 4 September 2020 the CMA opened enforcement cases against:

• Barratt Developments.

• Countryside Properties.

• Persimmon Homes.

• Taylor Wimpey.

The CMA will also be investigating firms who bought freeholds from these developers and have continued to use the same potentially unfair leasehold contract terms.

What action is likely against these developers?

How any enforcement action proceeds will depend on the CMA's assessment of the evidence.  Possible outcomes include legal commitments from the companies to change the way they do business, or if necessary, the CMA could pursue firms in court.

Alongside its enforcement action, the CMA is also sending letters to several other developers, encouraging them to review their practices to make sure they are treating consumers fairly and complying with their legal obligations.

What are the CMA’s main recommendations in respect of the sale of leasehold homes?

As well as publishing its own consumer guidance via a You Tube video the CMA has already recommended to government that it should consider legislation to deal with:

• Improving the existing system of redress for leaseholders, to make it simpler and cheaper for them to contest permission fees and service charges that they think are unreasonable or excessive.

• Legislating to deal with the "trap" where a residential tenant paying a ground rent in excess of £250 per year (£1,000 per year in London) may have a lease that qualifies as an assured tenancy.  

• Improving the quality of information available to prospective buyers early in the process, including information about the tenure of the property, the price (including the costs of buying) and the annual cost of ownership.

Comment

Whether the government pursue any of the recommendations set out by the CMA remains to be seen.  It is clear that the CMA are taking potential consumer detriment seriously and will take enforcement action if there has been evidence of breaches of consumer law.  Any enforcement action against developers is also likely to result in knock on civil claims against developers and the professional advisers to homebuyers.  

Whilst the outcome of any enforcement action is pending, it is imperative that great care is taken by developers and those advising homebuyers of leasehold homes with respect to the provision of clear and digestible information on leaseholds and the implications of purchasing a leasehold home.

Further information

For further information on property law generally and relating to shared ownership and new build properties, please do not hesitate to contact Mr. Bill Dhariwal on DDI: 01489 864 117 or E: bill.dhariwal@lawcomm.co.uk

The contents of this article does not constitute legal advice. Law applicable as at date of publication.