By Harry Scoffin
Six months on from rejecting calls to investigate controversial leasehold contracts, the Competition and Markets Authority has had a change of heart, launching on Thursday an inquiry into leasehold mis-selling. LKP appealed to the CMA to make this decision back in 2017.
The pro-consumer body is expected to look into whether certain lease clauses can be struck out for being ‘unfair terms’ as legally defined.
It has suggested its findings could lead to developers and freeholders having to pay out to affected leaseholders.
Compensation gets closer for Brits living in leasehold homes as inquest launched
The competition watchdog has outlined plans to investigate the extent of any potential leasehold mis-selling and onerous terms. The Competition and Markets Authority (CMA) has committed to investigating whether home owners are being hit with expensive fees or unfair contract terms, as well as whether they are being given all the information they need before signing up.
The CMA’s policy reversal seems to have been prompted by a highly critical report into the leasehold sector by the Communities Select Committee earlier this year. It had urged the CMA to take action.
In a letter to the group’s Chair, Clive Betts MP, CMA head Andrea Coscelli stated that his organisation would leverage its consumer protection law powers, rather than pursue a full-scale ‘market study’.
Mr Coscelli justified this on the basis that the CMA would play a supporting role to other stakeholders already leading on leasehold reform, including the LKP-run All-Party Parliamentary Group (APPG) and the Law Commission.
LKP hopes that this is not the CMA getting in its excuses early for another underwhelming research paper.
Veteran campaigners will remember the CMA’s 2014 review of residential property management services which had firmly concluded “the market works well for many leaseholders”.
The report failed to recommend statutory regulation of managing agents. Its rather inconsequential proposals to give leaseholders the right to ‘re-tender’ and ‘veto’ a managing agent were quietly dropped by government at the time, which then went on to block reform of the Right to Manage (RTM) regime.
Fast forward some thousands of consultation responses later, and with the leasehold scandal rising up the policy and media agenda to become second to Brexit, the CMA’s decision to reassess leasehold tenure could not have come at a better time.
LKP welcomes this development and trusts that government will give the CMA the resources it needs to produce a really seminal piece of work.
Related posts:
Government action on leasehold scandal has been ‘too weak and too slow’, says John Healey
Will CMA investigation at last give cheated leaseholders the chance to sue plc house builders?
Every other major economy has moved away from residential leasehold so why not us, asks shadow housing minister Sarah Jones
Competition and Markets Authority cannot investigate leasehold mis-selling because of Brexit, Brokenshire told
Woman has £165,000 flat forfeited over what began as £290 ground rent demand
Government will cave in to retirement house builders over ground rents, says Times
If the CMA has outlined its plans into Potential Leasehold Miss-Selling then do they go back to the 1980/90s when McCarthy & Stones were first challenged on selling long leases containing Un-Fair Contract Terms.
The Competition Watchdog outlined plans to investigate the extent of any potential leasehold Mis-Selling including Onerous Terms. Millions could be owed compensation after a probe into the small print that left people with Retirement Flats that become either Un-sellable or Un-mortgageable.
The CMA a replacement for the poor OFT may also have committed to investigating whether Retirement Flats (industry call them homeowners) were hit with:
*Expensive Service Charges
*Un-Necessary Exit Fees
*Un-Necessary Welcome Packs
*Allowance Cost for Pets
*Unfair Contract Terms
It has also been asked if Estate Agents and Solicitors provided the correct information before signing contracts. This is following long-held concerns that many Retirement Leaseholders did not fully understand what was included in the Lease which they had agreed to purchase.
In a letter from the HCLGC, to Andrea Coscelli, CEO of the CMA said he acknowledged concerns the Committee has raised about Residential & Retirement leasehold Mis-Selling. Buyers are avoiding Leasehold Houses/Flats like the plague. The letter said: “We have therefore decided that we will investigate to see the extent of any Mis-Selling and onerous leasehold terms, including whether they might constitute ‘unfair contract terms’ as legally defined. “We propose to use our consumer protection law powers as the most effective way of doing this, rather than by way of a ‘market study’ at this stage, which might in due course lead to our bringing enforcement proceedings if the evidence we uncover would warrant that.”
Concerns have previously been raised over a lack of clarity in the sales process. The committee has previously said people have been left trapped in unsellable and unmortgageable homes in the worst cases and it has called for wide-ranging reforms. Millions of Flat/House Purchasers could be due to Millions in Compensation.
Mr Clive Betts Chairman of the Select Committee Committee chair has stated they heard extensive evidence from leaseholders regarding:-
1..Onerous Ground Rent Terms
2.Excessive and Opaque Service Charges
3.One-off Bills for items not clearly seen in Service Charges
4.Unfair and excessive Permission Fee Charges
5.Unreasonable Costs to Enfranchise
6.Excessive Costs for Lease Extensions.
Over the course of the inquiry, the Committee heard evidence suggesting there are a significant number of cases where Flats/Houses Leaseholders were possibly deliberately misled about the terms they were signing up to.
If the sale of leasehold Flats/Houses has taken place with the purchaser under the impression that they were buying it Freehold, or as McCarthy & Stone advertised Virtual Freehold as some were informed, then action needs to be taken. Equally, if a Flat/House buyer is told they will be able to buy the freehold in 2 years, only to find out it has been sold on to another company, then this also should be investigated. Leaseholders need protection from Developers and their Solicitors and where evidence of mis-selling is proved, the CMA should immediately take action as they should now be aware of all Leasehold Exploitation.
All Leaseholders, actually purchase the right to live in their property for an agreed period of time. When a leasehold flat/house is sold first a lease is granted for a fixed period, typically between 99 and 125 years, but sometimes up to 999 years. Leaseholders can extend their lease or on rare occasions purchase the freehold.
To now purchase a Lease Extension for 90 years is said to cost circa £14k whilst the value of the flat is falling by up to 40%, not really financially viable is it?
Leases usually impose obligations on the leaseholder, such as the payment of Ground Rent at what was supposed to be Peppercorn Ground Rent, which is supposed to have no monetary value???
Recent information regarding Ground Rents that doubled every 33 years has come to life.
Freeholders set up the original lease say 25/11/1985 and the Ground Rent to Commence 25/04/1986 a full 2 years before a Flat would later be purchased on 31/12/1987. This meant there were no 33 years for the first period, as the Ground Rent Doubles from 06/2019, where 33 years would take us to December 2020.
This being fact, a Flat First Purchased in 1987 does not fulfil the dates mentioned in the lease, as the Landlord states the date the lease begins would be 2 years before it was built???
Any comments regarding these dates and is this, an Unfair Contract Term as the dates can not coincide from the date given on the front of such lease and the sold date being some 2 years later.
Just a thought?
We now know the lease begins at the time the lease was first created and not when first assigned.
So a new build purchaser may have bought two years after the creation of the lease?
In such a circumstance has the original developer/freeholder paid the first two years ground rent?
And if they have not paid,have purchasers bought a defective lease?
Do any of us seriously believe this is anything more than another empty gesture? All the while time is rolling on, whilst freeholders and developers are making moves to show they have reformed. The more time elapses the less likely anything at all is to happen
Positive Pete you post:-
Do we seriously believe this is anything more than another empty gesture?
I believe it is another nail in the coffin of Leasehold Exploitation as more and more Unfair Contract Terms are being highlighted, so Pete be Positive again.
Freeholders and Developers are making moves to show a level of reform, after LKP and About Firstport and the other in the past have shown how corrupt the whole of Leasehold, which has been allowed to flourish, under successive Governments.
To say we now know an Under Lease (lessee) begins on a date chosen by the Freeholder (Head Lessor) and an Under Lease ( Lessor) can be included within the Lease possibly over 2 years before works had been completed.
The Ground Rent payments begin on the date included in the Lease, which has no bearing on the 33 years, also claimed to be the period before the Ground Rent of £48 doubles to £96, then doubles again in a further 33 years.
So in a Lease of 99 years, the first period may be as little as 30 years because the Freeholder decides to provide a date in the Head Lease 6 months in the future even though the development had not been built.
Developments that take longer to build, the Leaseholders Lease begins at the time the Head Lease was first created and not when the Flat was later sold. This is an Unfair Contract Term as the first purchaser and subsequent purchasers in the first period have the length reduced, even though within the 99 years Lease it states:-
YIELDING AND PAYMENT therefor yearly and every year and so in proportion for a less time that is to say;-
A FIRST
(i) for the first 33 years, £48
(ii) for the next 33 years, £96
(III) for the remaining years, £192
Surely this has been an Unfair Contract Term as the date is fixed for Ground Rent to commence long before (2 years) an individual Flat can be purchased?
Positive Pete,
Are we going to get everything we want? Probably not?
Are we going to get a majority of what we want? Probably yes?
Have a look at the freeholder’s accounts, particularly “notes to the accounts”
You will see a degree of nervousness creeping in over any new legislation.
“Ability to service loans” are mentioned .
Once the money men sniff trouble, their money is off elsewhere.
Michael, thank you for being positive,
From information received the Ground rent Scam has moved on with the first period of any lease which can be reduced by many years and the Doubling begins on a date written into the lease before the work on site begins.
The CMA investigating is a good thing and another sign that things are changing.