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04 March 2020

Homebuyers duped into signing up to costly leasehold contracts

An investigation by the Competition and Markets Authority (CMA) has found that home buyers have been tricked into signing up to costly and unfair leasehold contracts by house developers.

The CMA inquiry took place after a huge uproar from customers who had bought new build leasehold homes, not realising they could be tied into paying extortionate ground rents and also finding that the properties were impossible to sell on.

The CMA found that certain developers did not tell buyers that they were buying a property on a leasehold basis; while other firms said that there was little distinction between buying a leasehold property and a freehold one.

The buyer of a freehold property, owns the land on which the property sits, as well as the bricks and mortar, however, the land under leasehold contracts is owned by a third party, which charges ground rent to the homeowners on an annual basis. The investigation revealed that some developers only highlighted this difference to customers just before a deal was completed, meaning it was very expensive for buyers to back out. 

The CMA also discovered that developers had misinformed customers by saying that they could buy the freehold for a small sum at a later date. For buyers who chose this option, they found that the cost has increased by thousands of pounds.

Other findings included that developers had bound customers into contracts which charged “excessive and disproportionate” fees for upkeep or they were fined for making minor changes to their home. Also some homeowners faced ground rents which would double every 10 years, making homes difficult to sell.

Andrea Coscelli, of the CMA, 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 homeowners, this is not the case.”

As a result of its investigation:

“The CMA is now completing all the necessary legal work to launch direct enforcement action against companies it believes have broken consumer protection law. This could result in firms signing legal commitments to change how they do business. If they fail to make the required changes, the CMA could take action through the courts to make them comply with the law.

“The evidence found by the CMA also supports the case for changes to the law in this area. The CMA will continue to work with the Government on its reform plans for the leasehold market, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.”

B P Collins’ property practice group is able to provide comprehensive advice on the nature of leasehold interests and the terms of leases, identifying, for example, unacceptable ground rent provisions.  Also, now that a number of developers have agreed to enter into deeds of variation to rectify lease terms which are unacceptable to the CMA and which may, therefore, have an adverse impact on the marketability of a property, B P Collins can also provide assistance on this issue.

For further information and advice, please contact Janine Gibbs at Janine.gibbs@bpcollins.co.uk or call 01753 279062.

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