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Leasehold issues likely to result in new claims against Property Developers

The ongoing investigation by the Competition and Markets Authority (CMA) into what has been dubbed the “leasehold scandal” has raised the real possibility of enforcement action being taken against unfair practices.

Central to the issue is the scenario of a developer of new build properties selling new houses as leaseholds. The developer has then sold the freehold to the house to third parties without telling the leaseholder.

It is an emotive issue and one that Which? magazine has been focusing on with Gareth Shaw, head of money at Which? saying: “It’s good to see the regulator taking strong action against those companies flouting the law. We look forward to seeing the government push on with its reforms to protect homeowners and ensure that these unfair practices are banished to the past.”

As part of its ongoing investigation, the CMA opened enforcement cases focusing on certain practices of leading builders Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey.

The move followed the CMA uncovering what is viewed as evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling. The CMA was concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.

The CMA’s action relates to the following areas of concern:

Mis-selling

  • 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. For example, the CMA 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, meaning people could feel pressured and rushed into buying properties that they may not have purchased had they been given more time.

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.

Andrea Coscelli, the CMA Chief Executive, said: “It is unacceptable for housing developers to mislead or take advantage of homebuyers. 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.”

Patently, there is the potential for increased professional negligence claims against the Conveyancer or Solicitor involved in a homebuyer’s purchase, together with the relevant developer or freeholder.

To discuss this further with an expert at W Denis, please make contact Daniel Moss on Daniel.moss@wdenis.co.uk or call 0044 (0) 113 2437243

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