Four of the UK’s largest house builders could face legal action after the Competition and Markets Authority (CMA) revealed it has launched enforcement action over the way leasehold homes were sold.
The CMA said it has uncovered “troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling” by Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey.
The regulator said the mis-selling included poor explanations of ground rents and the availability and cost of freeholds as well as unfair sales tactics.
It is also concerned about unfair contract terms surrounding escalating ground rents that make it harder for owners to sell their homes.
Possible outcomes include legal commitments from the companies to change the way they do business, or if necessary, the CMA could take firms to court, the regulator’s announcement said.
The CMA has written to Barratt, Countryside, Persimmon, and Taylor Wimpey outlining its concerns and requiring information.
All four developers said they would cooperate with the CMA investigation.
The CMA said it will also be investigating certain firms who bought freeholds from the developers under investigation and have continued to use the same unfair leasehold contract terms.
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.
Andrea Coscelli, chief executive of the CMA, said: “It is unacceptable for housing developers to mislead or take advantage of homebuyers.
“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.”
Leasehold reform campaigners backed the move.
Anna Bailey, chief executive of the Leasehold Group, said it was good to see the CMA finally showing its teeth.
She said: “We have been fighting for the rights of leaseholders for 18 years and finally we are starting to see positive action following the largely ineffective pledge made by builders.
“There has never been any justification for selling new houses as leasehold, it has simply been a way for house builders to enhance their profits at the expense of buyers.”
Sebastian O’Kelly, spokesman for the Leasehold Knowledge Partnership, added: “For years we were saying that plc house builders were ripping off their own customers with predatory ground rents and other games with leasehold tenure, and now the CMA agrees with us and is taking enforcement action.
“This was abusive corporate behaviour on a massive scale, and it is utterly shameful that professionals recommended by the plc house builders – solicitors and valuers – went along with it.
“As well as their customers, the plc house builders ripped off the rest of us as many of these blighted homes were bought with Help to Buy subsidies, and taxpayers are unlikely to get that money back.
“It is awful that these monopolising companies are poised to get further public subsidy from our ever-credulous government over its ambitious house building plans.”
NAEA Propertymark also supported the CMA’s action.
Mark Hayward, chief executive of the agency trade body, said: “For too long house builders and developers have not been transparent enough about what it means to buy a leasehold property, leaving many in financial difficulty as they have become trapped in confusing contracts with their freeholder.”