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Leasehold: ‘People who buy Leasehold Properties are being misled and taken advantage of’ say the CMA

Leasehold: ‘People who buy Leasehold Properties are being misled and taken advantage of’ say the CMA

An update on this article can be found here.

The CMA (Competition and Markets Authority) have today released the result of their enquiry into whether leasehold homeowners have been unfairly treated and prospective buyers misled by housing developers.

The main concerns when they started their enquiry were:

- Escalating ground rents that have led to leaseholders not being able to sell

- Misleading information about the cost of buying the freehold – for example, being told at purchase it will cost a minimal sum, only for leaseholders to find a short time later that the cost is much higher

- Misleading information about the difference between freehold and leasehold

- Onerous leasehold contract terms

- Unreasonable and excessive fees for shared areas with only expensive and costly ways to contest those fees

The CMA have found ‘worrying evidence that people who buy leasehold properties are being misled and taken advantage of’ (Andrew Cocelli – the CMA’s Chief Executive).

Interestingly the CMA say that they will shortly be taking their own enforcement action directly in the sector in relation to those companies that it believes have broken consumer protection law. They have not specified what this will involve, but it is assumed that they may be looking at asking businesses to sign legal commitments to change the way that they conduct their businesses in future.

What does this mean for trapped leaseholders though?

The recognition by the CMA of the difficulties that leaseholders are facing is, no doubt, welcome. It will make buyers think very carefully about whether to purchase a leasehold property in future. However, does this actually help you if you are experiencing difficulties with your leasehold property now? 

The short answer is – probably not just yet.

The pressure on developers and landlords to offer some assistance to leaseholders who find themselves in difficulty is increasing.  You only have to go on social media and search for #leasehold to see the depth of feeling from consumers.

Taylor Wimpey has had a ‘leasehold assist’ scheme in place for some time which essentially involves converting doubling ground rents (which lenders may not accept) to RPI increasing ground rents (which lenders have not yet rejected).  We are also aware of some Landlords who have been offering similar deeds of variation to alter the ground rent increases in leases where lenders have indicated they are too onerous to lend on thereby becoming unsellable – though these are often at the expense of the leaseholder who has to pay a substantial premium and so are still not ideal.

We hope that the CMA’s involvement may result in other organisations committing to similar schemes that may help leaseholders currently in this position and to preventing these issues in future.

What can I do if I have an issue with my leasehold property?

If you want some information on your options then we are here to help:

Escalating Ground Rents –  leases can be varied if the parties to them are able to agree. Alternatively, if you exercise your right to a lease extension then the ground rent will be reduced to a peppercorn. Our Enfranchisement team can advise you on the options open to you.

Misselling/Misleading information at the point of purchase or lease extension – if you feel that you were mis-sold to or were given incorrect information at the point of purchase our Professional Negligence experts can advise you about any potential action you may have against your former advisers, or the developer that sold your property to you.

Buying the Freehold – If you own a house then you have the right to purchase the freehold of your house under the Leasehold Reform Act 1967 and if you are a flat owner then you can get together with your neighbours and force your Landlord to sell you the freehold under the Leasehold Reform Housing and Urban Development Act 1993.  Our specialist Enfranchisement team are here to advise you and guide you through the process.

Unreasonable and excessive fees – There are a number of ways to contest unreasonable fees that are being charged by your Landlord under your lease. The Property Tribunal is a useful resource with the power to determine issues between residential landlords and leaseholders particularly in relation to charges being raised.

Alternatively, if you’d like to have control over these costs we can advise you on obtaining the right to manage your own building if you are a flat owner. Unfortunately, this right doesn’t apply to houses.

I’m a freeholder and I’m still experiencing these problems – what about me?

There is so much emphasis on ‘leasehold’ properties that one could be forgiven for thinking that freehold properties are the answer to all of these problems. Unfortunately, that is not always the case.

Most freehold properties enable the owner to manage their own repairs and services so that you can do what you want, when it is convenient for you, without needing to ask permission from a third party.  However, increasing numbers of freehold properties are being sold with a requirement to pay towards communal areas of the estate on which they are built and the charges raised are set by a third party – i.e. a management company, the developer, or a third party that purchased the estate from the developer.  There may also be restrictions in the transfer deed stating that you can’t alter the property without permission.

Many homeowners find themselves being asked to contribute estate charges at a level which they consider to be unreasonable and to pay premiums just to get consent to alter their homes.

The owner of a leasehold property can apply to the Property Tribunal for a determination of the reasonableness of the service charges or any other fee their Landlord demands. If the Landlord can’t show the sums are reasonable then the Tribunal can decide that the Tenant doesn’t have to pay those fees.  Freeholders cannot apply to the Tribunal in the same way and instead have to apply to the County Court. This is a much more onerous and expensive process which means most freeholders find themselves simply accepting that they will have to pay up the sums demanded not matter how unfair they seem.

Not only that but the consequences of not paying can sometimes be just as, if not more, draconian than those which befall a leaseholder. If the charge is by way of an ‘estate rentcharge’ then the owner of the rentcharge can take possession of your property or obtain a lease over it in their favour if you don’t pay the charge for more than 40 days, even if it has not been demanded.  The leaseholder in a similar situation can ask the Property Tribunal for help, the freehold owner can’t and there are only limited grounds to contest.

If you are a freeholder who is experiencing problems then we are here to help too!

Contact us on 01273 477071