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CMA finds evidence of “serious issues” in leasehold selling

Jessica Nangle

February 28, 2020

The Competition and Markets Authority (CMA) has found troubling evidence of potential mis-selling and unfair contract terms in the leasehold housing sector, and is set to launch enforcement action.

The CMA is concerned that leasehold homeowners have been unfairly treated and prospective buyers misled by housing developers.

These concerns include ground rents, cost of freehold, misleading information in regards to not being told upfront that a property is leasehold and what that means and unreasonable fees.

Andrea Coscelli, chief executive at the CMA, said: “We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.

“Buying a home is one of the most important and expensive investments you can make, and once you’re living there you want to feel secure and happy. But for thousands of leasehold homeowners, this is not the case.

“We’ll be looking carefully at the problems we’ve found, which include escalating ground rents and misleading information, and will be taking our own enforcement action directly in the sector shortly.”

The CMA is now completing all the necessary legal work to launch direct enforcement action against companies it believes have broken consumer protection law.

This could result in firms signing legal commitments to change how they do business.

If they fail to make the required changes, the CMA could take action through the courts to make them comply with the law.

The evidence found by the CMA also supports the case for changes to the law in this area and the authority will continue to work with the government on its reform plans for the leasehold market, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.

Mark Hayward, chief executive at NAEA Propertymark, added: “We have long called for action to be taken to help leaseholders who have been misled and treated unfairly.

“For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold, which in turn has meant many owners have been faced with escalating ground rents and unreasonable fees, leading them into financial difficulty.

“Our research shows three in five (62%) leaseholders feel they were mis-sold and therefore it’s vital enforcement action takes place as soon as possible to give some hope to those who are currently trapped with no easy route out.”

James Tarr, head of leasehold management at Andrews Property Group, said: “To anyone who manages leasehold developments the findings of the CMA probe into the industry will come as no surprise whatsoever.

“The sooner the leasehold sector becomes regulated, the better.

“That will solve a significant percentage of the problems that are occurring almost immediately.

“You need to have a situation where conveyancing solicitors and developers alike are obliged to spell out the full meaning of leaseholds, in plain English, before any transaction takes place.

“Whenever we take on a new development we always hold a residents’ meeting and explain the basics of leasehold and why the owners need to pay a service charge.

“There’s often a huge amount of confusion as to the difference between ground rent and service charges, and in some cases residents have been told they can even opt out of these charges.

“Everyone buying a leasehold flat needs to go in eyes wide open not, as currently happens all too often, eyes wide shut.”


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