Competition watchdog launches probe into potential leasehold mis-selling

A probe into potential mis-selling in the leasehold market has been launched by the competition watchdog.

The Competition and Markets Authority (CMA) will investigate whether people are being treated fairly when buying their home.

It follows concerns about the fairness, clarity and presentation of some leasehold contract terms, which could lead to people being stung by costly fees over a long period or having to abide by onerous conditions.

The CMA is writing to companies across the sector – including developers, lenders and freeholders – requiring information to understand more about how leaseholds are sold and managed, and the terms their contracts contain.

It is also calling on home-owners to share their experiences.

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 Housing, Communities and Local Government Committee has previously heard that ground rents have been increased to the point where properties are difficult to sell on or mortgage.

The CMA said its consumer protection law investigation will focus on two key areas.

One is potential mis-selling and whether people who have bought a leasehold property are given the information they need to fully understand the obligations they are taking on – for example, the requirement to pay ground rent over a certain period of time – or whether they have an accurate understanding of their ability to buy their freehold.

The other area is potential unfair terms and whether people are having to pay excessive fees due to unfair contract terms.

This will include administration, service, and “permission” charges – where home-owners must pay freeholders and managing agents before making home improvements – and ground rents, which in some cases can double every 10 years.

George Lusty, CMA senior director for consumer enforcement, said: “Buying a home is one of the most expensive and important purchases a person can make, so it’s essential they fully understand the contract they are signing – including whether they will have to pay more than they bargained for.”

If the CMA thinks that what a company is doing is misleading, or that its contracts contain unfair clauses, it could take enforcement action to require the company to change how they operate.