Pippa Garrod, associate solicitor in Blandy & Blandy’s dispute resolution team, explains why certain housebuilders are facing action in relation to leasehold homes.
Enforcement action over leasehold homes
The Competition and Markets Authority (CMA) has written to four of the UK’s largest housebuilders to express concerns over the ‘mis-selling’ of leasehold homes after its investigation found ‘troubling evidence of potentially unfair terms’.
The CMA has said it will consider taking the companies to court if they do not demonstrate a commitment to altering the way they conduct business.
Andrea Coscelli, chief executive of the CMA, explained: “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.”
What is a leasehold home?
Buyers purchasing leasehold homes do not own the land on which their property is built and are required to pay ground rent to the freeholder, either the house builder or a management company established on their behalf.
Leaseholders also pay a service charge to cover the cost of maintaining communal areas. The CMA’s findings showed that, in some cases, ground rents were increasing by up to 100 per cent annually.
The CMA also discovered that some buyers were led to believe that the cost of subsequently purchasing their property’s freehold would be substantially less than in reality. Other homeowners were wrongly advised that their properties were not available on a freehold basis.
Mr Coscelli continued: “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.”
Potential reform of the law
The Law Commission carried out a consultation on enfranchisement and lease extensions and highlighted a number of concerns in the way that the leasehold market currently operates.
On July 21, 2020 the Law Commission published its report ‘Leasehold Home Ownership: buying your freehold or extending your lease’. The report recommends a number of reforms of the law, including proposals to make it easier and cheaper for leaseholders to buy the freehold. The Law Commission’s recommendations have now been referred to the Government for consideration.
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