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Always Read the Small Print

I picked up on a slightly disturbing article from Property Week recently. They reported:

“The competition watchdog has warned four of the country’s biggest housebuilders that it could take them to court after it found evidence of unfair terms in contracts with homebuyers, and potential mis-selling.

The Competition and Markets Authority said it has written to Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey about the practices.

It warned that some leasehold buyers were being hit with ground rents that doubled every decade, and said that others were wrongly told they were unable to buy the freehold on a site.

CMA chief executive Andrea Coscelli 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.”

The CMA will also be looking further into ground rent increases based on the Retail Price Index (RPI) and may take enforcement action should it find evidence of unfair practices in relation to these.

In particular, the CMA said it was concerned about the fairness of escalating ground rent terms linked to RPI and that these were not always effectively explained by developers when discussing RPI-based ground rent with prospective homeowners.

The CMA will also be investigating certain firms who bought freeholds from these developers and have continued to use the same unfair leasehold contract terms.

If the investigation confirms wrongdoing the CMA could demand legal commitments from the companies to change their practices or take the firms to court to force them to do so.

Alongside its 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.

A statement from Barratt said: “Barratt Developments notes the announcement made by the UK Competition and Markets Authority that it is opening an enforcement case as part of its ongoing investigation in relation to the sale of leasehold homes. The group is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation.”

A spokesman for Countryside said: “We are committed to resolving this issue to the satisfaction of our customers and will continue to co-operate fully with the CMA’s ongoing investigation.”

Taylor Wimpey added: ”The board takes this very seriously and Taylor Wimpey will continue to fully cooperate with the CMA, provide the further information to be requested by the CMA in the coming weeks and work with them to better understand their position.”

Commenting on the news, housing secretary Robert Jenrick said: 

“Shameful practices of the kind set out by the CMA have no place in our housing market and we are going to put an end to them.

“The Government asked the CMA to conduct this investigation and I strongly welcome the action to tackle mis-selling in the leasehold sector and want to see homeowners who have been affected by crippling ground rents swiftly obtain the justice and redress they deserve.

“Developers and freeholders must rectify the problems and ensure these disgraceful practices never happen again. We will be introducing legislation to restrict ground rents in new leases to zero and outlaw new leasehold houses. We are also considering the important work of the Law Commission on wider reforms to leasehold such as enfranchisement rights and will be responding in due course.” 

Persimmon Homes had not commented at the time of publication.”

The problems with leaseholds are:

  1. They can come with onerous clauses preventing the occupier from carrying out improvements.
  2. The shorter the lease the more likely it is to have a detrimental effect on the resale value and for sub 60 years they are difficult to get mortgages on.
  3. Sometimes ground rents are charged and these can be expensive.

 

If you are looking to sell your house quickly then contact us for a fair price for a fast sale.