The competition watchdog is opening an investigation into potential breaches of consumer protection law in the leasehold market.
The Competition and Markets Authority says it is concerned about possible mis-selling and whether people are being ‘stung’ by costly fees over a long period of time.
It is particularly concerned about whether leasehold contracts are onerous and unfair in relation to ground rent, service charges, and permission fees.
While it is clear that it is developers and their products under the spotlight, there is no indication that the probe will limit itself to new homes. A spokesperson for the CMA said that the range of the investigation will be decided on the evidence that comes in.
Mark Hayward, CEO of the NAEA, said: “We welcome the investigation by the CMA into the leasehold market. For too long, house builders and developers have not been transparent enough about what it actually means to buy a leasehold property, which has led to three in five (62%) feeling like they were mis-sold.
“Buying a property is a huge undertaking and it should be an exciting time, but for thousands of home owners 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.”
The investigation will focus on two key areas:
- Potential mis-selling: whether people who have bought a leasehold property are given the information they need to fully understand the obligations they are taking on, for example the requirement to pay ground rent over a certain period of time, or whether they have an accurate understanding of their ability to buy their freehold.
- Potential unfair terms: whether people are having to pay excessive fees due to unfair contract terms. This will include administration, service, and ‘permission’ charges – where home owners must pay freeholders and managing agents before making home improvements – and ground rents, which in some cases can double every ten years.
The CMA is writing to companies across the sector, including developers, and is calling on people to share their experiences.
If the CMA thinks that a company’s practices are misleading – or that its contracts contain unfair clauses – it could take enforcement action to require the company to change how they operate.
George Lusty, senior director for consumer enforcement at the CMA, 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.”
Initial responses are invited by July 12.
Five email addresses are given where evidence may be sent, suggesting the initial scope of the investigation.
More information: https://www.gov.uk/cma-cases/leasehold