Housebuilders investigated by watchdog after evidence emerges of leasehold mis-selling

Housebuilders LIED to the buyers of leasehold homes it emerges as competition watchdog prepares to take action against them

  • Watchdog finds serious issues with the way leasehold homes have been sold  
  • Homebuyers were not properly advised on what they were being sold
  • Thousands of homeowners could potentially have been mis-sold to as a result

Housebuilders came under fire today as the competition watchdog revealed it has found ‘troubling evidence’ that leasehold homes were mis-sold.

Some 100,000 families across the country are currently trapped in unsaleable homes due to onerous and restrictive terms in their leasehold contracts. 

Today, the Competition and Markets Authority said it has evidence that these families may not have been given enough information about what they were signing up to when the homes were sold.

In some of the worst cases, home buyers may have even been lied to when asking direct questions about their leasehold contracts.   

The CMA has found ‘serious’ issues with the way leasehold properties have been sold

Last year the CMA revealed it was launching a probe into the way that leasehold homes were sold

Today it revealed a litany of concerns over the way that developers have sold leasehold properties, including the way that ground rents, fees, and the cost of buying freeholds were and are explained to buyers. 

Andrea Coscelli, the CMA’s chief executive, 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.

What is the leasehold scandal? 

A leasehold agreement gives a tenant the temporary right to occupy land or property, and is granted to the leaseholder by the freeholder of the property.

These leases are long term and it’s not uncommon for them to last for over hundreds of years.

These properties are traditionally flats where there are communal areas and shared facilities that need to be maintained.

The scandal came to light in 2017 after it emerged that property developers had been selling new build houses on a leasehold basis. 

These leases often came with extortionate fees and spiralling ground rents attached.

Some developers included punitive ‘doubling clauses’ in sales contracts that hike ground rents at an alarming rate, ultimately trapping people in homes they cannot sell.

Once the purchases were complete, in many cases property developers then sold on freeholds to third party companies without informing the homeowners.

In some of the worst cases, freeholders were slapping homeowners with fees to make elementary amendments to their own homes – £252 to own a pet or £60 to put up a doorbell. 

Many who bought a leasehold property claim they were not made aware of what they were buying at the time, thinking that they were buying the property rather than a lease. 

‘We’ll be looking carefully at the problems we’ve found, which include escalating ground rents and misleading information, and will be taking our own enforcement action directly in the sector shortly.’ 

The CMA said it has seen evidence that people have been misled about the costs of ground rent, the cost of converting their leasehold to freehold ownership, and the cost of unreasonable fees. 

It also claimed that some developers are failing to explain the differences between leasehold and freehold when directly asked, with some even telling potential buyers that there is no difference between the two.

By the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or would face significant difficulties if they tried to do so, the CMA found.

Lastly, the Authority is concerned that ‘excessive and disproportionate’ fees for things like the routine maintenance of a building’s shared spaces or making home improvements are being charged.

The CMA said it is now preparing 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. 

Developer appointed law firms may also be involved

Last year This is Money revealed that nine out of 10 leaseholders did not have the difference between freehold and leasehold clearly explained to them by their conveyancing solicitor when they bought their homes. 

This means that thousands of conveyancing solicitors, some of whom were chosen by the developers of the homes, may have breached their duty of care to their clients, according to the National Leasehold Campaign report. 

The findings echo a similar report released earlier in the year by the Solicitors Regulation Authority which found that 23 per cent of leaseholders were not properly advised.

The SRA’s report however was smaller in scale and was based on evidence given by solicitors rather than leaseholders.

At the time, several solicitors told the SRA that they saw no reason to explain the difference between freehold and leasehold to the buyer as they assumed the client would already know, or the estate agent would have already explained it.  

The NLC’s report found that almost all respondents were not informed of the long-term financial implications of leasehold by their solicitor and 92 per cent said they would not buy their leasehold property now with the same tenure and legal conditions.

More than four out five people were not told that the freehold could be sold onto a third-party investor while the same number were not informed about the legal right to buy their freehold.

 >> Homeowners Alliance founder and chief executive Paula Higgins shares her advice for leasehold property owners 



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