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Housebuilders probed over ‘unfair’ and ‘mis-sold’ leasehold contracts

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Written by: Shekina Tuahene
04/09/2020
Four major national house developers are being investigated by the Competition and Markets Authority (CMA) over concerns buyers were misled when purchasing leasehold properties.

Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey are being examined by the regulator. 

The CMA said it uncovered “troubling evidence” of potentially unfair terms regarding ground rents and potential mis-selling but added its investigation did not mean the named firms were involved in any or all of these practices. 

Regarding mis-selling, it is suspected increases in ground rent are not being fully explained to buyers nor are the frequency of these increases.

Also, it will look at unfair contracts terms which mean homeowners have to pay rising ground rents, which in some cases double every decade. As the increase is built into contracts, this can cause issues when homeowners come to sell their properties and in obtaining mortgages.  

Ground rent increases based on the Retail Price Index (RPI) will be examined alongside the other issues, and the CMA may take action if it finds evidence of unfair practices in relation to this as it is concerned the link between ground rent and RPI is not always effectively explained to buyers. 

Developers potentially misleading buyers regarding the availability of freehold properties is being looked into, as the CMA said it found evidence that people were told homes on an estate could only be sold as leasehold, before other properties were sold as freehold to different buyers. 

Additionally, the regulator found some buyers were misinformed about the costs of converting a leasehold property into a freehold, with it often costing thousands of pounds more than expected a few years later. 

The CMA will also investigate unfair sales tactics including short deadlines to complete a sale, which can make buyers feel pressured into making a purchase. It said some buyers potentially would not have bought a property if they knew they had more time. 

It will also look at firms who have bought freeholds from developers but continue to use unfair leasehold contract terms. 

Andrea Coscelli, CMA chief executive, 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.” 

Full cooperation 

All four property developers said they were aware of the investigation and would fully cooperate with the CMA during the investigation. 

Barratt Homes said it was committed to putting its customers first. Countryside said it was “committed to resolving this issue” to the satisfaction of its customers, while Taylor Wimpey said it took the matter “very seriously”. 

A spokesperson for Persimmon added: “A proportion of our properties were sold on a leasehold basis in the past. 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.” 

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