Competition watchdog takes enforcement action over leaseholds

The competition watchdog has launched enforcement action against four of the UK’s leading housing developers – Barratt, Persimmon, Taylor Wimpey and Countryside Properties – after an investigation uncovered evidence that leasehold homeowners and prospective buyers were being misled and charged excessive fees.

The Competition and Markets Authority said the developers may have broken consumer protection laws and has started enforcement action against them.

“It is unacceptable for housing developers to mislead or take advantage of homebuyers,” said Andrea Coscelli, the chief executive at 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.”

The CMA’s lengthy investigation found “troubling evidence” of unfair practices including homeowners paying escalating ground rents, which in some cases were planned to double every 10 years, and people being told properties on an estate would only be sold as leasehold homes when they were later sold freehold to other buyers.

Other issues include telling leaseholders that converting to freehold ownership would be cheap, only for them to be told later it would cost thousands of pounds with no warning. There was also evidence of unfair selling practices, such as unnecessarily short deadlines to complete purchases to pressure people into making deals they may not have done with more time.

The CMA said that at this stage it should not be assumed that the developers have been involved in “any or all of the outlined practices”.

It said it would also be investigating certain unnamed firms who bought freeholds from the four developers and have continued to use the same unfair leasehold contract terms.

The regulator has written to the developers outlining its concerns and requesting information. Depending on how the CMA’s case develops, outcomes include getting legal commitments from the developers to change the way they do business or, if necessary, taking the firms to court.

Barratt Developments responded by saying it was “committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation”.

The CMA said it was also sending letters to a number of other unnamed developers encouraging them to review their practices to make sure they were treating consumers fairly and complying with the law.

“The CMA will continue to work with the government on its reform plans for the leasehold market,” the regulator said, “including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.”

Shares in Barratt fell 3% in early trading, making it the biggest faller in the FTSE 100 index and Persimmon fell by just over 2%.

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