Four of the UK’s largest housing developers could face legal action after the Competition and Markets Authority (CMA) revealed it has initiated action over the way leasehold homes were sold.
The developers in question are:
- Barratt Developments
- Countryside Properties
- Persimmon Homes
- Taylor Wimpey
The CMA claims that it has unearthed 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 by developers after being given misleading information.
What are they investigating?
According to the Governments report, available here, the CMA are looking into the following:
- Ground rents: developers failing to explain clearly exactly what ground rent is, whether it increases over time, when increases will occur and by how much.
- Availability of freehold: people being misled about the availability of freehold properties. For example, the CMA 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: people being misled about the cost of converting their leasehold to freehold ownership. When buying their home, the CMA found evidence that some people were told the freehold would cost only a small sum, but later down the line the price had increased by thousands of pounds with little to no warning.
- Unfair sales tactics: developers using unfair sales tactics – such as unnecessarily short deadlines to complete purchases – to secure a deal, meaning people could feel pressured and rushed into buying properties that they may not have purchased had they been given more time.
Unfair contract terms – ground rents
- The use of unfair contract terms that mean homeowners have to pay escalating ground rents, which in some cases can double every 10 years. This increase is built into contracts, meaning people can also struggle to sell their homes and find themselves trapped.
Issues with Retail Price Index (RPI)
Ground rent increases based on the Retail Price Index (RPI) are also a point of interest for CMA. RPI is used to measure price inflation and the CMA is concerned about the fairness of escalating ground rent according to RPI. They suspect that the potential inflation is not always effectively explained by developers when exploring RPI-based ground rent with prospective homeowners. This can lead to people paying a lot more than they originally expected, which is clearly wrong if they have been assured this would not be the case.
The CMA have written to Barratt, Countryside, Persimmon, and Taylor Wimpey outlining its concerns and requiring information.
Possible outcomes of this action include legal commitments from the developers to change the way they conduct business, or if it comes to it, the CMA could take firms to court. All four housing developers are said to have confirmed they will co-operate with the investigation.
As well as the enforcement action, the CMA is also 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.
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.”
People wishing to provide further evidence regarding the companies named can get in touch via email: email@example.com. The CMA is interested in hearing information on either leasehold houses and/or flats, referred to above as leasehold homes.
For further information people can contact the CMA press office via firstname.lastname@example.org or on 020 3738 6460.
What do we think?
Deceiving and intentionally misleading others should never be tolerated. We pride ourselves on being totally upfront with our clients when it comes to pricing, information and anything else, so we expect other businesses to act the same way.
Getting on the property ladder is one of the hardest things to achieve in life for most people, so to trick anyone in any way, or to give information that will only turn out to be untrue in the end is unforgivable. Of course, this is an on-going investigation so we will not jump to any conclusions, but we hope that at the end of it some more positive policies might be put in place and more genuine support be given to potential homeowners.
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