The Competition and Markets Authority (CMA) has committed to investigate potential mis-selling in the leasehold sector, and estate agents could be among those seen as culpable.
A letter from the CMA to MPs on the Housing, Communities and Local Government Committee said the regulatory body plans to investigate “the extent of any mis-selling and onerous leasehold terms”.
It said: “We propose to use our consumer protection law powers as the most effective way of doing this, rather than by way of a ‘market study’ at this stage, which might in due course lead to our bringing enforcement proceedings if the evidence we uncover would warrant that.
“You will appreciate that at this stage, it would be premature to express a view on whether onerous leasehold terms in fact constitute unfair terms.”
The HCLG Committee had called for the CMA to launch an investigation as part of a parliamentary inquiry into leasehold reform.
The CMA is yet to release the scope of the investigation – which it is believed will be released in the coming weeks – but there are warnings that estate agents should be braced for claims.
It is not clear yet whether the inquiry will apply solely to new leasehold sales or second-hand ones as well.
A CMA spokesman added: “The select committee has raised serious concerns that many home owners who buy long leasehold property don’t know exactly what they are signing up to, and may be trapped in contracts with unfair terms once they move in.
“We have committed to investigating whether these home owners are being hit with expensive fees or unfair contract terms, as well as being given all the information they need before signing on the dotted line. We will set out the full terms of this work when it begins.”
Activists at the National Leasehold Campaign have backed the investigation and said in a statement provided to EYE: “Estate agents need to know exactly what they are selling.
“Otherwise they could leave themselves open to accusations of misrepresentation and it is definitely something they should be concerned about.”
Sebastian O’Kelly, spokesman for the Leasehold Knowledge Partnership campaign group, said developers and freeholders should take primary responsibility but added that estate agents should be in the scope of the inquiry.
O’Kelly said: “Anybody who sold these properties should be part of the inquiry, at least for agents’ own benefit so they can understand what has been sold.”
O’Kelly said he was already seeing PPI-style ambulance-chasing firms looking to help home owners with claims against developers, adding: “This is how it should be.
“Developers have cheated their own customers – there are homes that are un-sellable because of this.”
Mark Hayward, chief executive of NAEA Propertymark said he has also seen groups planning legal action.
He told EYE: “If an agent has been involved in the sale of a leasehold property, they’re required to highlight anything that might affect a consumer’s transactional decision, whether it be service charges, onerous ground rents or charges for making alterations to the property.”
Agents and developers in the firing line as MPs call for overhaul of the leasehold system
Comments (10)
I think there is a duty of care for agents to put more than the words ‘leasehold’ on property details though. That just smacks of laziness and any potential viewer/purchaser who spends money travelling or investigating a property, only to be told it has an onerous ground rent, would be rightly pi**ed off?
Are your Viewbers all trained up on explaining leasehold situations to potential buyers?
We are estate agents, are we not here and not trained to give legal advice on the complexities of a lease. We are employed by the vendor to act in their best interests, we are not employed in any way by the purchaser.
Our role is to point out the facts, length of lease, service charge, ground rent etc. Our role is also is also (in my opinion) to mention potential downsides that may cause the sale to fall through later…..doubling ground rents for example.
As has been mentioned above, this investigation should have 2 main focuses. Firstly why are short leases and doubling ground rents even allowed and secondly are buyers getting suitable advice from their solicitor, who after all is the legal expert the buyer is paying to give them advice and support.
Any involvement of estate agents in this is ridiculous.
I understand that a line must be drawn where our involvement is no longer considered reasonable (i.e outside of our remit as Estate Agents).
I believe that legislation put in place to protect our customers is largely targeted at cowboys rather than industry professionals.
Not everyone is honest about leases when securing a sale, not everyone is caught out when this happens.
Personally, I believe it is our responsibility to make our clients aware that there may be issues that they should check with their solicitors rather than leaving it up to them to check. They are, after all, not from within the industry and may not know what questions to ask.
I think that a simple “Be sure to ask your solicitors to read through the terms of your lease for you” would be more productive for sales in the long run.
Hillofwad71 –
Agents are the ones selling, the point of the investigation. Conveyancers may be investigated too, but it should not have to get to conveyancers before they at least do their job. Conveyancers are the ones who do point all this out, sadly, as it gets to them and buyershave no clue what they just put an offer in for, as estate agents, surveyors, mortgage advisers, and mortgage lenders all fail them up to that point and have told them very little.
Agents need to know what they are selling!?
” Agents need to know what they are selling!?”
Well of course they do I should imagine posters here would take umbrage that they are accused of not doing so Fully aware of the Misrepresentation Act and perfectly capable of reading a lease
Most of the complaints have arisen from new developments where the housebuilders have been using their own sales team with the buyer using a designated solictor wearing too many hats.Conflicted Its not the agents its the developers
The devil is in the detail
The developer seeing the ground rental income as another source of profit selling off the freehold to a third party who will exploit the terms of the lease
Caveat Emptor Get proper legal and property advice
Speaking as a highly experienced Conveyancer I have sadly to agree. We are completely to blame on this and Solicitors who have acted for buyers and given improper advice should be held to account. We all know how it has happened and I have worked at a Company for a very short time and seen it in action. Unqualified inexperienced staff under pressure of targets pressing buttons. No proper advice given to clients who had no idea what they were buying. Hand on heart I know I have always advised my clients properly but I know there are many in the profession who would be unable to say that. Merely sending a copy of a Lease to a client and saying “read the Schedule with the restrictive covenants” is hardly best advice.
But at the same time that documentation has been prepared by Developers Solicitors. I hope they are looked at as well as they are not blameless in what has happened. They knew what they were drafting and the implications and the developers would be acting on their advice presumably so they have to be culpable also.
So does the corner shop (agent) or the tobacco company (developer) get sued for cancer deaths? If the doctor (conveyancer) misdiagnoses then is it the corner shop’s fault?
Let’s imagine a universe where most people are unaware of the damages of smoking, other than shop owners, tobacco companies and Doctors.
It is the responsibility of all 3, being within the industry, to make their clients aware of any potential risk.
The shop owner is the first customer facing element of this dynamic and therefore expected to be upfront and honest about potential future complications.
Failing to share information that may have otherwise influenced a client’s decision to purchase a product, regardless of what field it is in, is misrepresentation.
People trust us to hold their hand and protect them from serious financial harm, it is our responsibility to do so to the best of our abilities. Anything less than this is just not cricket, we all know it but a few of us don’t want to take responsibility.
” Select committee has raised serious concerns that many home owners who buy long leasehold property don’t know exactly what they are signing up to, and may be trapped in contracts with unfair terms once they move in”
If that is the case then aren’t solictors handling the purchase at fault for not flagging up the implications of these unfair terms and advising their clients not to accept them. If they do then it it is reflected in the price paid .Obligations clearly spelled out
What do you pay solictors for ? Let’s use an example of 2 identical properties. One is freehold for £200k and one is £150k as it is being sold on a 125 year lease at a ground rent of £2,000pa subject to 5 yearly open market reviews capped and collared at 1.5% and 3%The price reflecting the ground rent journey
It might suit some to choose the leasehold option as the entry price suits their pocket paying less knowing they have an increasing ground rent to pay in perpetuity
Allowing them to access a property otherwise denied by the cost .The market finds its own level