Competition watchdog outlines plans to investigate leasehold sector
The competition watchdog has outlined plans to investigate the extent of any potential leasehold mis-selling and onerous terms.
The Competition and Markets Authority (CMA) has committed to investigating whether home owners are being hit with expensive fees or unfair contract terms, as well as whether they are being given all the information they need before signing up.
It follows concerns that many leaseholders do not fully understand what they agreeing to.
In a letter to the Housing, Communities and Local Government Committee, Andrea Coscelli, chief executive of the CMA said the watchdog acknowledges concerns the committee has raised about leasehold mis-selling.
The letter said: “We have therefore decided that we will investigate to see the extent of any mis-selling and onerous leasehold terms, including whether they might constitute ‘unfair terms’ as legally defined.
“We propose to use our consumer protection law powers as the most effective way of doing this, rather than by way of a ‘market study’ at this stage, which might in due course lead to our bringing enforcement proceedings if the evidence we uncover would warrant that.”
Concerns have previously been raised over a lack of clarity in the sales process.
The committee has previously said people have been left trapped in unsellable and unmortgageable homes in the worst cases and it has called for wide-ranging reforms.
Leaseholders, in effect, purchase the right to live in their property for an agreed period.
When a leasehold flat or house is first sold, a lease is granted for a fixed period of time, typically between 99 and 125 years, but sometimes up to 999 years – although people may extend their lease or buy the freehold.
Leases usually impose obligations on the leaseholder, such as the payment of a ground rent.
The committee has heard that ground rents have been increased to the point where properties are difficult to sell on or mortgage.
It is also concerned that some leaseholds have been quickly sold on to third parties, despite home buyers being told they would have the opportunity to buy the freehold, who would then vastly increase the cost.
And it said there are issues over leaseholders being required to pay high fees to make minor cosmetic changes to their homes, such as changing a doorbell.
Committee chair, Clive Betts said: “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.
“Over the course of the inquiry we heard evidence suggesting that there are a significant number of cases where home buyers may have been deliberately mis-led about the terms they were signing up to.
“If the sale of leasehold house has taken place with the home buyer under the impression that they were buying it freehold, or ‘equivalent to freehold’ as many were told, then action needs to be taken.
“Equally, if a home buyer 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.”
He continued: “Home buyers need to be protected and, where evidence of mis-selling is proved it is right that the CMA take action.”
A CMA spokeswoman said: “The select committee has raised serious concerns that many home owners who buy long leasehold property don’t know exactly what they are signing up to, and may be trapped in contracts with unfair terms once they move in.
“We have committed to investigating whether these home owners are being hit with expensive fees or unfair contract terms, as well as being given all the information they need before signing on the dotted line. We will set out the full terms of this work when it begins.”
Communities Secretary James Brokenshire recently unveiled an industry pledge to prevent leaseholders being trapped in costly deals, signed up to by more than 40 property developers and freeholders.
Mr Brokenshire said: “For too long exploitative and unfair leasehold arrangements have placed excessive burdens on homeowners.
“These have no place in a modern housing market and since becoming Communities Secretary I have repeatedly made clear my ambition to end them.
“That’s why I asked the Competition and Market’s Authority to look into the issue and I am pleased to see it is now taking action.”