Competition watchdog takes action against major housebuilders
The competition watchdog, the Competition and Markets Authority (CMA), has launched enforcement action against four major housebuilders that it believes may have broken consumer protection law in relation to leasehold homes.
The CMA said it was opening cases focusing on the practices of Barratt Developments, Countryside Properties, Persimmon Homes, and Taylor Wimpey.
The watchdog claimed it had uncovered “troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling”.
It said it was concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.
The CMA’s action covers a number of different areas:
- Ground rents: developers failing to explain clearly exactly what ground rent is, whether it increases over time, when increases will occur and by how much.
- Availability of freehold: people being misled about the availability of freehold properties. The CMA said it had found evidence that some people were told properties on an estate would only be sold as leasehold homes, when they were in fact later sold as freeholds to other buyers.
- Cost of the freehold: people being misled about the cost of converting their leasehold to freehold ownership. When buying their home, the CMA found evidence that some people were told the freehold would cost only a small sum, but later down the line the price had increased by thousands of pounds with little to no warning.
- Unfair sales tactics: developers using unfair sales tactics – such as unnecessarily short deadlines to complete purchases – to secure a deal.
Unfair contract terms – ground rents
- The use of “unfair” contract terms that mean homeowners have to pay escalating ground rents, which in some cases can double every 10 years. This increase is built into contracts, meaning people can also struggle to sell their homes and find themselves trapped, the CMA said.
The watchdog added that it will also be looking further into ground rent increases based on the Retail Price Index (RPI) and may take enforcement action should it find evidence of unfair practices in relation to these. The CMA will also be investigating certain firms who bought freeholds from these developers and have continued to use the same unfair leasehold contract terms.
The CMA has now written to Barratt, Countryside, Persimmon, and Taylor Wimpey outlining its concerns and requiring information.
How the case proceeds will depend on the CMA’s assessment of the evidence. 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.
Andrea Coscelli, CMA chief executive, said: “It is unacceptable for housing developers to mislead or take advantage of homebuyers. That’s why we’ve launched today’s enforcement action.
“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.”
Meanwhile, 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.
Responding to the news, Countryside said: “We are committed to resolving this issue to the satisfaction of our customers and will continue to co-operate fully with the CMA’s ongoing investigation.”
In a statement, Taylor Wimpey said: “We note the announcement from the CMA that they are opening an enforcement case against Taylor Wimpey and other leading housing developers in connection with the sale of leasehold homes and potential breaches of consumer protection laws. The board takes this very seriously and Taylor Wimpey will continue to fully cooperate with the CMA, provide the further information to be requested by the CMA in the coming weeks and work with them to better understand their position.”
Barratt Development said: “Barratt Developments notes the announcement made by the UK Competition and Markets Authority (‘CMA’) that it is opening an enforcement case as part of its ongoing investigation in relation to the sale of leasehold homes. The group is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation.”