Enforcement launched against major house builders

The Competition and Markets Authority (CMA) is launching enforcement action involving four housing developers it believes may have broken consumer protection law in relation to leasehold homes.

As part of its ongoing investigation, the CMA is focusing on practices of York-headquartered Persimmon Homes, alongside Barratt Developments, Countryside Properties and Taylor Wimpey.

The move comes after the the authority uncovered what it describes as “troubling evidence” of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling.

It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.

It’s action relates to the following areas of concern the mis-selling of:

• Ground rents, with developers failing to explain exactly what ground rent is, whether it increases over time, when increases will occur and by how much.
• Availability of freehold, the CMA has already found evidence that some people were told properties on an estate would only be sold as leasehold homes, when they were in fact later sold as freeholds to other buyers.
• Cost of the freehold,  evidence has been found that some people were told the freehold would cost only a small sum, but later down the line the price increased by thousands of pounds with little to no warning.

The action will also consider the use of unfair sales tactics by developers such as unnecessarily short deadlines to complete purchases and  secure a deal, as a result pressuring and rushing consumers into buying properties that they may not have purchased had they been given more time.

The action will also consider the unfair contract terms with regards to ground rents, which can mean homeowners having to pay escalating fees. The authority has cited that in some cases ground rents can double every decade, with the increase built into contracts and can result in people struggling to sell their homes and finding “themselves trapped”.

The CMA has also stated it will be looking further into ground rent increases based on the Retail Price Index (RPI) and may take enforcement action should it find evidence of unfair practices in relation to these.

The authority says it is concerned about the fairness of escalating ground rent terms linked to RPI and that these are not always effectively explained by developers when discussing RPI-based ground rent with prospective homeowners.

The CMA will also be investigating certain firms which bought freeholds from these developers and have continued to use the “same 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.”

Alongside its enforcement action, the CMA is sending letters to a number of other developers, encouraging them to review their practices to make sure they are treating consumers fairly and complying with the law.

The CMA says it 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.

This is the latest move in the battle against leasehold and comes after the Government launched a consultation into banning the sale of new build homes as leasehold in 2018 and a number of developers including Barratt and Taylor Wimpey signed a Government backed pledge last year to scrap doubling classes in leases.

At the time the pledge was announced, the Government was asked by Inside Housing if there would be action taken for breaking the pledge and a Ministry of Housing, Communities and Local Government spokesman said: “The pledge is a public statement showing the intent that both government and those with responsibility for leases have to take the problem of onerous clauses seriously.”