Following on from my earlier blog post - ‘People who buy Leasehold Properties are being misled and taken advantage of’ say the CMA' - on 4th September 2020 the Competition and Markets Authority (CMA) launched enforcement action against 4 leading developers:
They began their enquiry back in June 2019 and reported their findings in February. 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
In February 2020 they found ‘worrying evidence that people who buy leasehold properties are being misled and taken advantage of’ (Andrew Cocelli – the CMA’s Chief Executive).
The most consumer protection legislation at the heart of the CMA’s investigation are the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and Part 2 of the Consumer Rights Act 2015 (CRA). The CPRs contain a general prohibition against unfair commercial practices and specific prohibitions against misleading actions, misleading omissions and aggressive commercial practices. Part 2 of the CRA aims to protect consumers against unfair contract terms and notices and requires contract terms to be fair and transparent.
This legislation is relevant because a lease is simply a form of contract which provides the leaseholder with exclusive possession of the land and property on it for a fixed term. A lease sets out all of the rules which a leaseholder has to follow when using and occupying the property. Effectively, in a situation where you purchase a leasehold property from any big developer such as those listed above, your bargaining power is lower than the commercial body that you are purchasing from. This often means that the lease you are presented with is drafted in a way that is very favourable to the developer and may be disadvantageous to you, the consumer. Often, the developer will refuse to alter the terms of the lease and leaseholders are required to ‘take it or leave it’. If all of the big developers in the country are offering the same or very similar deals on new build homes then that can mean consumers feel that they little choice but to agree to what they are being offered in order to get on the property ladder. Worse still, some consumers don’t truly understand what they are buying because leasehold law is complex.
The CMA will now look closer at the issues I have referred to and will also be looking further into ground rent increases based on the Retail Price Index (RPI) – in particular the CMA is concerned about the fairness of escalating ground rent terms linked to RPI. A move that I welcome as I have never been convinced that this alternative to doubling ground rents really fixes the ground rent problem. RPI increases still result in increases which could be considered excessive and the true impact of those increases cannot be known with certainty in advance.
The CMA is now specifically engaging with the companies referred to above to establish more information about the practices that they use to sell leasehold properties.
Andrea Coscelli, CMA Chief Executive, said:
“Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been misselling or unfair contract terms, these will not be tolerated.”
There will be many leaseholders out there who are very keen to find out what the outcome of the investigation may be – but more importantly, whether the CMA is actually going to take any action which might have an impact.