Competition and Market Authority reports findings of leasehold mis-selling

28 Feb 2020

Today the Competition and Market Authority (CMA) published initial findings regarding unfair contract terms and mis-selling. The CMA has been investigating the leasehold residential market sector. Its findings centred on leasehold homeowners being misled and subject to unfair contract terms.

In short, the CMA found:
  • Ground rents: clauses hiding deep away in the lease allowed the freehold owner to raise ground rents. In certain instances the CMA found ground rents had increased by 100% every ten years and that these “escalators” were sometimes built in to the lease
  •  These escalator clauses can act to prevent leaseholders from selling their leases to new tenants.
  •  The CMA found evidence that tenants have been misled on the costs of converting leasehold to freehold title. On purchasing their lease, some tenants were mis-sold on the basis that the conversion costs from leasehold to freehold would be minimal. Subsequently, the conversion costs had “increased by thousands of pounds with little to no warning”. [Source CMA press release 28.02.2020].
  • Also found was the fact that people were not informed from the outset that their title would be leasehold nor what that meant. Oftentimes, the purchase had got to the point, by the time the purchaser was informed of the implications of having a leasehold interest, that it was too late to pull out of the purchase without real cost.
  • Excessive fees: The CMA found purchasers were being invoiced on an excessive and disproportionate basis for certain items. These items included day to day maintenance of a building’s common part or structure. Challenges to these fees are often difficult and expensive and the CMA found that, such are the difficulties of challenging the charges, only few go ahead.
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." [source BBC news 28.02.2020]

The CMA is pressing ahead with the sector investigation with a view to starting enforcement action. The CMA has a fearsome array of weaponry. It can issue fines and force firms to sign up to binding legal commitments on their future behaviour. It can launch dawn raids to gather information to assist its investigations.

For property developers who may feel that in all good faith, they might need to look at their contracts/ leases, they are best advised to get ahead of the curve, seek advice and approach the CMA themselves, once they have got their houses in order. For leaseholders who feel that they have been the victims of such conduct, they too can seek legal advice.

For further information email Jonathan Compton LLB LLM Solicitor Barrister MCIArb.

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