Competition watchdog investigates developers over mis-selling claims

The Competition and Markets Authority (CMA) is investigating four of the UK's most prominent housebuilders after "troubling evidence" emerged about the way leaseholds were sold.

The regulator has commenced proceedings against Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey because it believes they may have broken consumer protection laws.  The CMA has demanded information from the developers and may take them to court if they don’t change the way they operate.

The move comes after buyers complained of being unwittingly caught in a leasehold trap, with unfair fees and ground rents that double.

In February, the CMA published a scathing interim report, where it found "worrying evidence that people who buy leasehold properties are being misled and taken advantage of." It found additional evidence that people were not given the right information about the cost of converting their leasehold to freehold.

Unfair Contracts

Millions of properties in England have been sold as leasehold. Unlike a freeholder, a leaseholder does not own the land the property is built on. Effectively, they rent it from the freeholder for a fixed period, sometimes centuries and pay them an annual ground rent. Some buyers subsequently discover they are tied into contracts where ground rents rise considerably, making them more expensive. The freehold can also be sold on to third parties.

The CMS has uncovered evidence that in some cases, ground rents have doubled every ten years, and homeowners were incorrectly told they couldn't purchase the freehold of a site. Some buyers were advised it would be cheap to upgrade to a freehold, but later the prices shot up by thousands of pounds.

What Happens Next?

Possible outcomes include taking the four housebuilders to court if they don't make a legal commitment to change their terms. The CMA is also investigating companies that have purchased freeholds from developers and continued to use the same unfair conditions.

"It is unacceptable for housing developers to mislead or take advantage of homebuyers," said Andrea Coscelli, chief executive of the CMA

"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."

Additionally, the watchdog will work with the government on plans to reform the leasehold market, including a move to ban the sale of new leasehold homes.