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CMA launches leasehold investigation

Wednesday 12 June 2019

The Competition and Markets Authority (CMA) has officially launched its inquiry into the leasehold market to look at whether consumers are being treated fairly.

This follows the announcement last month that the CMA would be launching an investigation on the mis-selling of leasehold properties.

After concerns about people with leasehold contract terms finding themselves being treated unfairly and leading to them being stung by costly fees, the CMA is writing to developers, lenders and freeholders to understand more about how leaseholds are sold and managed, the terms their contracts contain and also understand the impact on homeowners by calling on people to share experiences.

If the CMA then think that a company’s practices are misleading, or that its contracts contain unfair clauses, it could take enforcement action to change how they operate.

The investigation will examine two key areas:

Potential mis-selling: whether people who have bought a leasehold property are given the information they need to fully understand the obligations they are taking on, for example the requirement to pay ground rent over a certain period of time, or whether they have an accurate understanding of their ability to buy their freehold.

Potential unfair terms: whether people are having to pay excessive fees due to unfair contract terms. This will include administration, service, and ‘permission’ charges – where homeowners must pay freeholders and managing agents before making home improvements – and ground rents, which in some cases can double every 10 years.

All information relating to this investigation, including how people can share their leasehold experiences can be found on the case page.

George Lusty, Senior Director for Consumer Enforcement, 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.”

Mark Hayward, Chief Executive, NAEA Propertymark, comments on the Competition and Markets Authority’s (CMA) consumer law investigation into the leasehold market: “We welcome the investigation by the CMA into the leasehold market.

“For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property which has led to three in five (62 per cent) feeling like they were mis-sold.

“Buying a property is a huge undertaking and it should be an exciting time, but for thousands of homeowners, it’s led to financial difficulty as they’ve become trapped in confusing contracts with freeholders. 

“It’s encouraging to hear the CMA will take enforcement action against any company found to be misleading consumers.”

The NAEA Propertymark Leasehold: A Life Sentence? report revealed three in five (62 per cent) of leasehold property owners felt they were mis-sold and a further 93 per cent wouldn’t buy another leasehold property.

Propertymark resources

Propertymark has produced an Understanding Leasehold guide which provides NAEA Propertymark members with best practice and key information when it comes to helping people buy and sell leasehold property. To access this, login to the members area.