The Competition and Markets Authority (CMA) has launched a wide ranging appeal for evidence of the mis-selling of leasehold properties.
The regulator is investigating leaseholds after MPs and consumer groups voiced concerns that some leasehold contracts were unfair allowing high fees and imposing difficult terms.
The investigation will probe two key areas which have been highlighted by homeowners and property experts:
- Potential mis-selling where buyers may not have been given all the information they need to make an informed decision of the obligations they are taking on
- Potential unfair terms where excessive fees are being charged for unfair contract terms
The first will centre on possible sharp practice where vendors have not been made aware of the implications of paying annual ground rent or been told how much it could cost them to buy the freehold of their property.
The second will include a close look at administration, service and ‘permission’ charges which protestors claim can be excessive and are not properly explained at point of sale.
In March the Housing, Communities and Local Government Committee said the system was leaving homeowners with unsellable and unmortgageable homes.
Some are forced to pay excessive fees to be allowed to make the simplest of home improvements or find there is a clause in the lease which allows for the doubling of ground rent every 10 years.
Leasehold v freehold
If a house is bought freehold then the sale also includes the land on which the building sits, but if it is leasehold then ownership is open to a number of terms and conditions.
The owner has the right to use the property but must ask their landlord for permission to make even small alterations like changing a doorbell and the allegation is that the cost of those changes can be excessive.
Senior director for consumer enforcement at the CMA, George Lusty, 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.
“Our investigation will shed light on potential misleading practices and unfair terms to help better protect people buying a home in future.”
In gathering evidence the regulator will insist that developers, lenders and freeholders supply information on how leaseholds are sold and managed.
They also want leaseholders to share their experiences of the process and the impact that fees and contract terms had on them.
The consultation will remain open until July 12th.
Three in five
Commenting on the inquiry Mark Hayward, chief executive of estate agent trade body NAEA Propertymark, said: “For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property, which has led to three in five people feeling like they were mis-sold.
“Buying a property is a huge undertaking and it should be an exciting time, but for thousands of homeowners, it’s led to financial difficulty as they’ve become trapped in confusing contracts with freeholders.
It’s encouraging to hear the CMA will take enforcement action against any company found to be misleading consumers.”
Louie Burns of the Leasehold Group of Companies added: “Leaseholders have been consistently ripped off by freeholders for decades and on a huge scale.
By employing dishonest practices including onerous ground rent terms, unjustifiably high service charges and one-off bills, unfair and excessive permission charges and unreasonable costs to enfranchise or extend leases, freeholders have effectively held leaseholders to ransom.
“This has not happened by accident – it is the result of a concerted effort by greedy freeholders and developers to extract every penny they can from leaseholders, many of whom simply did not understand the implications of leasehold ownership because they were not provided with the correct information at the time of purchase.”