Yahoo Finance Leasehold trap: watchdog investigates if homebuyers are treated unfairly
UK homeowners at risk of falling into the so-called “leasehold trap” could benefit from a new official investigation into potential misleading practices and unfair terms.
The Competition and Markets Authority (CMA) said its inquiry into the leasehold market – the latest in a line of investigations – would look at whether consumers were being treated fairly.
There are about 4.2m residential leasehold properties in England, of which about 2.9m are flats, and the government has already announced a crackdown on the sector to tackle a range of abuses. In late 2017 the government confirmed it was putting a stop to the sale of new leasehold houses in England, and a consultation on other measures ended in November 2018.
The CMA said its investigation would look at two key areas. One was potential mis-selling, focusing on whether people who had bought a leasehold property were given the information they needed to fully understand what they were taking on – for example, on their rights around buying their freehold.
The other area of concern was potentially unfair contract terms, and whether these were resulting in people being charged excessive fees. During the last few years cases have emerged where buyers have discovered that their ground rent doubled every 10 or 15 years. In 2016 the Guardian revealed the case of a Birmingham flat owner who discovered that her ground rent was not £250 a year, as she had thought, but £8,000 a year, and would keep doubling so that in 95 years it would be £8m.
George Lusty, senior director for consumer enforcement at the CMA, said: “Buying a home is one of the most expensive and important purchases a person can make. So, it’s essential they fully understand the contract they are signing – including whether they will have to pay more than they bargained for.
“Our investigation will shed light on potential misleading practices and unfair terms to help better protect people buying a home in future.”
The CMA said its investigation followed ongoing concerns about the fairness, clarity and presentation of some leasehold contract terms, “which could lead to people being stung by costly fees over a long period, or having to abide by onerous terms”.
In May this year the Guardian outlined the case of a London leaseholder living in a council tower block who had received a bill for £146,000, representing his share of the cost of refurbishing the block.
The competition watchdog will be writing to companies across the sector, including developers, lenders and freeholders, to request information on their contracts.
If the CMA thinks a company’s practices are misleading, or that a firm’s contracts contain unfair clauses, it could take enforcement action to require the company to change how it operates.
