The Competition and Markets Authority has announced that it has found “troubling” evidence of mis-selling of leasehold homes and that it is set to launch enforcement action.
The CMA said that it is concerned that buyers have been unfairly treated and misled. It will now launch action against companies it believes has broken consumer protection law.
While the CMA has specifically picked out developers, there is no suggestion that it is confining its criticisms – or action – to the new homes sector.
The CMA has found that home owners are having to pay escalating ground rents, which can double every ten years; are being misled about the cost of converting their leaseholds to freehold ownership; are not being told upfront that a home is leasehold; and are being charged ‘excessive and disproportionate fees’ for costs such as maintenance to common parts, or for making home improvements.
CMA 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 home owners, 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.”
TheCMA said that enforcement action could include making firms sign legal promises that they will change the way they do business, and that it will work with the Government on changing leasehold law.
Mark Hayward, CEO of NAEA Propertymark, welcomed the move.
He said: “We have long called for action to be taken to help leaseholders who have been misled and treated unfairly.
“For too long, house builders and developers have not been transparent enough about what it actually means to buy a leasehold, which in turn has meant many owners have been faced with escalating ground rents and unreasonable fees, leading them into financial difficulty.
“Our research shows three in five (62%) leaseholders feel they were mis-sold and therefore it’s vital enforcement action takes place as soon as possible to give some hope to those who are currently trapped with no easy route out.”
Comments (11)
Come on, we all know what this was really about. Help to buy incentivised first time buyers to buy new build. With today’s draconian mortgage conditions, for most this was the only way that they would ever get to own their own home.
Their naivety and desperation to get on the housing ladder was taken advantage of. Why else would there suddenly be a need to introduce leasehold measures to what historically would have been an average housing estate?
Now imagine the impact these leasehold 3 bed semi and 4 bed detached homes are going to have on estate agents chains in the future…
I would be very surprised indeed if any Conveyancer was found to have not pointed out the key terms of the lease in the report to the customer.. the problem is that customers do not read the report or do not want to comprehend what they are being told – they are in love with the property already.
The answer is to outlaw the onerous terms in the lease to begin with.
Will be interested to see the strength of the evidence they have uncovered of mis-selling. Many complaints I had seen of mis-selling was of the site office verbally stating one thing, which turned out to be incorrect in the documentation or not followed through with.
If they have found written misinformation, then that it pretty brazen!
Simply pointing out the terms of the lease isn’t good enough. Purchasers must be assumed to be un-sophisticated in understanding the long term implications of escalating ground rents and it’s effect on ability to pay, reduction in capital values and possible sale blight due to lack of mortgagability.
Any solicitor or agent acting for a purchaser offered one of these leases should surely advise against purchase and put it in writing.
After taking those steps you can claim “Buyer Beware” with a touch of impunity.
It’s one of the biggest rackets out there.
You want a conservatory on your own house do you?
That’ll be £1000 please………..
Even worse
You built a conservatory and now you want to sell do you? That’ll be £2000 please……..
It wants banning. Simple
Anyone who has tried to get a marketing package from First Port know the pain of this. Nightmare – we’ve lost so many sales because of the bureaucracy there. We lost one because the new owner wanted to bring her dog with her (as you would) but they wouldn’t allow it.
I’ve one (not First Port), but the rental income is £395 pcm and the management fee has gone up over the past 4 years to £177 pcm! It is that high because the previous management company mismanaged the fund and didn’t carry out necessary repairs. It makes them unsellable and is a lot of money to find in addition to mortgage payments.
“The CMA has found that home owners are having to pay escalating ground rents, which can double every ten years; are being misled about the cost of converting their leaseholds to freehold ownership; are not being told upfront that a home is leasehold; and are being charged ‘excessive and disproportionate fees” for costs such as maintenance, or for making home improvements.”
What I don’t understand when there is a clause in your lease which says your ground rent will be reviewed every 10 years to open market value and that it is a 125 year lease how is that misleading ?
Any solicitor acting would spell out quite clearly that there is no guarantee that you can buy the freehold in and that rents are likely to rise
More importantly that these factors are taken into account in the price you are paying and get a valuation
If they haven’t then surely they should shoulder the blame?
Anyone who followed this sorry saga would be aware that some solicitors and some conveyancers were not telling their clients about these onerous clauses. Possibly the fact that they were retained or had a referral agreement with a major builder affected who was the client.
As a person who has read many many leases and spoken to many owners I know very well that even in straight forward purchases the legal details are rarely explained.
Let’s be clear if those onerous clauses are in the lease-they are clear and unambiguous If you pay a solicitor/conveyancer to act on your behalf they have a duty ofcare to draw them to the buyer’s attention
Indeed a sorry saga if they weren’t and should be sued. However this should be reflected in the price and
Just goes to show how important it is to take professional valuation advice
Furthermore many buyers are content to purchase leasehold homes with beanstalk rental increases knowing they can obtain them cheaper than unemcumbered freeholds
Putting themselves into a position to buy a home they would never be able to afford if freehold .The market finds its own level
I do find it somewhat surprising that the Select Committee thought that ground rents above £250 should be capped and no future increase applied. Even to the point of taking on a challenge about Human Rights which would for certain would be coming if such legislation was passed.
If an initial ground rent was say..£350 why should it be trimmed back to £250. The draft lease was considered by the purchaser and their professional advisors over a few months. Why should a knight in shining armour come to the lessees aid and fight off an attack from those who argue (and I agree with them) that their human rights has been derogated . Leaving that argument aside is £350 per annum versus £250 per annum of such magnitude and seriousness to warrant such help ?
The fallout from such meddling would be that other contracts could then be challenged and our whole sophisticated legal and economic culture brought into doubt
A near hysteria has broken out with lenders refusing to lend where a ground rent is £375 per annum on a £275,000 flat. Let us not forget that the Road Fund License on a family car is around that figure and the sale prospects of a car costing a fraction of the price of the flat is not unduly troubled by such a tax. The deprecation on my phone/laptop and TV easily amounts to £375 every few months.
The root of the problem is the failure to value the financial burden of the ground rent stream imposed on the property. It is of course for no service and therefore needs to be valued and reflected in the offer price. If the NPV (using a defined discount rate set by the government from time to time) of the ground rent is shown next to the premium/offer price for a leasehold property, then much of the moaning would move on to something else.