The Competition & Markets Authority (CMA) has launched an investigation into mis-selling of leasehold properties.
The CMA said it will examine whether the most onerous leasehold terms, such as permission fees and doubling ground rents, might constitute ‘unfair terms’ as legally defined. It was detailed in a letter sent to the The Housing, Communities and Local Government Committee.
In the letter to MP Clive Betts, chair of the committee, Andrea Coscelli, chief executive at the CMA, said: “We acknowledge the significant concerns that the committee has raised about leasehold mis-selling, and whether leasehold contract terms are unfair in relation to, for example, ground rent and permission charges.
“We have therefore decided that we will investigate to see the extent of any misselling and onerous leasehold terms, including whether they might constitute ‘unfair terms’ as legally defined.”
Both the HCLGC committee and NAEA Propertymark welcomed the CMA’s investigation.
Betts had written to the CMA urging an investigation following evidence heard over the course of its inquiry into leasehold reform.
He added: “The Housing, Communities and Local Government Committee report into leasehold laid bare a system in urgent need of reform, where homebuyers are vulnerable to exploitation by freeholders, developers and managing agents.
“Worse still, we heard extensive evidence from leaseholders regarding onerous ground rent terms, high and opaque service charges and one-off bills, unfair and excessive permission charges, and unreasonable costs to enfranchise or extend leases.
“I am pleased that the Competitions & Markets Authority has taken positive action to understand the scale of mis-selling and onerous leasehold terms. Homebuyers need to be protected and, where evidence of mis-selling is proved, it is right that the CMA take action.”
CMA’s investigations may, in due course, lead to it bringing enforcement proceedings against the developers and freeholders responsible.
Betts said that over the course of the inquiry he heard evidence suggesting that there are a significant number of cases where homebuyers may have been deliberately mis-led about the terms they were signing up to.
He said if the sale of a leasehold house has taken place with the homebuyer under the impression that they were buying it freehold, or “equivalent to freehold” as many were told, then action needs to be taken.
Betts said: “Equally, if a homebuyer is told they will be able to buy the freehold in a couple of years, only to find out it has been sold on to another company, then this should be investigated.”
NAEA Propertymark cited its Leasehold: A Life Sentence? report which found three in five (62%) felt they were mis-sold and a further 93% wouldn’t buy another leasehold property.
Mark Hayward, chief executive, NAEA Propertymark, added: “We welcome the investigation by the CMA into the mis-selling of leasehold properties, as for too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property.
“Buying a property is a huge undertaking and it should be an exciting time, but for thousands of homeowners, it’s led to financial difficulty as they’ve become trapped in confusing contracts with freeholders.”