CMA finds evidence of serious issues in leasehold selling
The Competition and Markets Authority is set to take action after finding potential mis-selling and unfair contract terms in the leasehold housing sector.
The CMA has found evidence of people being misled about the cost of converting their leasehold to freehold – initially they were told it would only cost a small amount, but later down the line that price increased by thousands of pounds with no warning.
There are also cases of people not being told upfront that a property is leasehold and what that means, as some developers failed to explain the difference between them and freeholds.
People are also being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements. If people want to challenge charges the process is often difficult and costly, meaning few decide to go through with it.
The CMA also raised concerns about escalating ground rents, which can double every 10 years. The increase can be built into contracts, which means people can struggle to sell their homes.
Andrea Coscelli, chief executive of the CMA’s, 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 completing the 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 changes the CMA could take action through the courts.
Mark Hayward, chief executive of NAEA Propertymark, a professional body for estate agents. said: “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.”
Louie Burns, managing director of the Leasehold Solutions Group, said: “We welcome this report and commend the CMA for its thorough research to date.
“This is a damning report that highlights numerous leasehold abuses and we are pleased to see that the CMA is prepared to act against the developers and freeholders responsible.
“Freeholders so often claim that it is just a few isolated cases or blame the leaseholders for not reading the lease properly. Thanks to the CMA, we finally have an official document which lists “numerous complaints” of freeholder abuses in undeniable and shaming detail.”
A spokesman for the Council for Licensed Conveyancers said: “Property lawyers licensed by the CLC have a duty to put their clients first.
“Any breach of that is a serious matter and if a purchaser feels they have not been properly advised we would urge them to raise it with the practice and if they are still dissatisfied then with the CLC.
“People should always be free to make their own choice of lawyer.”
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.”