Housebuilders threatened with court action over leasehold scandal after watchdog finds ‘troubling evidence’ of misselling

‘It is unacceptable for housing developers to mislead or take advantage of homebuyers,’ says Competition and Markets Authority

Ben Chapman
Friday 04 September 2020 16:45
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Regulator may take developers to court if they do not change the way they operate
Regulator may take developers to court if they do not change the way they operate

Four of the UK’s biggest house builders could face court action by the competition watchdog over “troubling evidence” that they mistreated buyers of leasehold properties.

The Competition and Markets Authority (CMA) has launched enforcement action against into Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey.

The regulator wrote to the developers demanding evidence about the leasehold scandal and said it may take them to court if they do not change the way they do business.

Buyers may have been unwittingly trapped into ground rents that double every year, leading to huge bills, the CMA said.

“It is unacceptable for housing developers to mislead or take advantage of homebuyers. That’s why we’ve launched today’s enforcement action,” said CMA boss Andrea Coscelli.

“Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been misselling or unfair contract terms, these will not be tolerated.”

A freeholder owns both the house and the land it is on, while a leaseholder basically rents the property for a fixed period – sometimes centuries.

The watchdog said it was taking action over the misselling of leaseholds. It said that developers had not clearly explained what ground rent is and whether it increases over time to some buyers.

When buying a leasehold, rather than a freehold, buyers often have to pay a ground rent to the person or company who owns the freehold on the site.

But when potential buyers asked if they could become the freeholder, some were told that the properties on an estate were only available as leasehold homes.

Homes on the same estates were later sold as freeholds to other buyers, the CMA said.

When buying their home some new homeowners were told that it would be cheap to upgrade from a leasehold to a freehold – but this price later went up by thousands of pounds.

Gareth Shaw, Head of Money at Which?, said: “We’ve found that some leaseholders have been trapped in unsellable properties with spiralling ground rents, and even ordered to pay eye-watering retrospective permission fees under the threat of losing their home.

“It’s good to see the regulator taking action against some of the biggest housebuilders to protect homeowners and sending a clear message that bad practices like these must be a thing of the past.”

Barratt said: “The group is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation.”

Taylor Wimpey said: “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.”

Persimmon said: “A proportion of our properties were sold on a leasehold basis in the past.

“Following consultation with government, stakeholders and customers we took the decision to stop selling leasehold houses where Persimmon owns the land freehold in 2017.

“Any customers of a Persimmon leasehold property in the last six years have been given the right to buy their lease at below market value and many have done so.”

A spokesperson for Countryside Properties 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.”

Additional reporting by PA news agency

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