Competition watchdog set for enforcement action in leasehold sector

The competition watchdog is preparing to act over “worrying evidence” of potential mis-selling and unfair contract terms in the leasehold housing sector.

The Competition and Markets Authority (CMA) is set to launch enforcement action against companies it believes have broken consumer protection law.

It has not disclosed any names so far as it continues to investigate.

The CMA is completing legal work which it said could result in firms signing commitments to change how they do business. If they fail to make the required changes, the CMA could take action through the courts.

The CMA opened an investigation into the leasehold housing market in June 2019.

It said the evidence it has found supports the case for changes to the law.

The CMA said 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.

With a leasehold property, people own their property for the length of their lease agreement with the freeholder. The leaseholder does not own the land the property is on and there may be charges such as ground rent to pay.

When the lease ends, ownership returns to the freeholder, unless the lease can be extended.

Flats are often owned leasehold, and some houses have also been sold on this basis.

As part of its probe into the industry, the CMA said it is concerned that leasehold home-owners have been unfairly treated and prospective buyers misled by housing developers.

Its concerns include home-owners having to pay escalating ground rents, which in some cases can double every 10 years. This increase is often built into contracts, meaning people can struggle to sell their homes and find themselves trapped.

The CMA said it has also seen evidence that people have been misled about the cost of converting their leasehold to freehold ownership.

When buying their home, some people were told the freehold would cost only a small sum, but later on find the price had increased by thousands of pounds with little to no warning.

The watchdog said some developers are failing to explain the differences between leasehold and freehold when directly asked, and some actually tell potential buyers that there is no difference.

By the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or would face significant difficulties if they tried to do so.

The CMA also raised concerns about excessive and disproportionate fees for routine maintenance of a building’s shared spaces or making home improvements. If people want to challenge such charges, the process is often difficult and costly, meaning few decide to go through with it.

Chief executive Andrea Coscelli 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.”