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Homebuilders forced to remove doubling ground rent leasehold clauses

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Written by: Emma Lunn
19/03/2021
The Competition and Markets Authority (CMA) has ordered Countryside and Taylor Wimpey to remove doubling ground rent clauses from new and existing leases.

The controversial lease clauses mean that leaseholders have to pay ground rents that double every 10 or 15 years. This means that an initially affordable ground rent can quickly become unaffordable, with the knock-on effect of making a property difficult to remortgage or sell.

The CMA launched enforcement action against four housing developers in September 2020.

These included Countryside Properties and Taylor Wimpey, for using possibly unfair contract terms, and Barratt Developments and Persimmon Homes over the possible mis-selling of leasehold homes.

The CMA has now written to Countryside and Taylor Wimpey outlining its specific concerns that their use of terms that double the ground rent every 10 or 15 years breaks consumer protection law.

The CMA is requiring the removal of ground rent terms which it thinks are unfair from all existing Countryside and Taylor Wimpey contracts to make sure they are no longer in breach of the law. The companies must also agree not to use the terms again in any future leasehold contracts.

Andrea Coscelli, CMA chief executive, said: “These ground rent terms can make it impossible for people to sell or get a mortgage on their homes, meaning they find themselves trapped. This is unacceptable. Countryside and Taylor Wimpey must entirely remove all these terms from existing contracts to make sure that they are on the right side of the law.

“If these developers do not address our concerns, we will take further action, including through the courts, if necessary.”

Countryside and Taylor Wimpey now have the choice to sign formal commitments – known as ‘undertakings’ – to remove the ground rent terms from their leasehold contracts, or face the CMA in court.

As part of its review of the leasehold sector, the CMA will also continue to investigate certain firms – such as investment companies – which bought freeholds from these developers and have continued to use the same leasehold contract terms. Its investigation into Barratt Developments and Persimmon Homes is also ongoing.

Gareth Shaw, head of money at Which?, said: “Our research found that some leaseholders face onerous clauses from developers, bad advice from lawyers and spiralling ground rents that effectively rendered their homes unsellable.

“It’s good to see the regulator taking action against some of the biggest housebuilders to protect homeowners and sending a clear message that bad practices like these must be a thing of the past.”

The National Leasehold Campaign, a group set up by disgruntled leaseholders, Tweeted: “We are delighted the @CMAgovUK have taken this action. Many leaseholders remained trapped by a system rigged against them in many ways. We will continue to work with CMA for justice.”

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