CMA Publishes Updated Report On New Build Leaseholds

The Competition & Markets Authority (CMA) investigation into the sale of new-build leasehold properties was never likely to make easy reading for the many developers under review, and so it has come to pass with its Update Report being published at the end of February.

This is effectively the interim stage of the CMA’s work in this area, but the direction of travel looks pretty obvious and one would expect its recommendations and further work to be in the same vein.

Essentially, the CMA has now publicly stated it has found evidence of mis-selling by developers and that buyers have been treated unfairly and been charged unreasonable fees. It has raised four key concerns and highlighted how this treatment has been meted out. These areas are:

• Ground rents: homeowners having to pay escalating ground rents, which in some cases can double every 10 years.
• Cost of the freehold: the CMA has seen evidence that people have been misled about the cost of converting their leasehold to freehold ownership.
• Misleading information: not being told upfront that a property is leasehold and what that means.
• Unreasonable fees: being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements.

As you will know the Conveyancing Association, working with a number of other trade organisations, bodies and consumer groups, highlighted all of the above and it is particularly gratifying to see the CMA supporting all our concerns.

The big question of course, is now that the CMA has identified evidence of this taking place, what will it do next? Well, the update suggests that further investigations will be opened up, and from this we may well see potential prosecutions into mis-selling and ground rents. After all, the CMA has explicitly stated that it has found no reason to justify escalating ground rents or other excessive fees which have been changed.

Some conveyancing firms have of course had very tight relationships with developers and the CMA has expressed some concern about the notion of ‘recommended solicitors’ and the incentives that have been offered to the consumer in order to use these ‘recommended’ firms. However, this is not been expressed in a way that indicates they have found detriment, although we should perhaps be braced for this in the final report.

We can only hope that the CMA are able to identify the nuance of a recommendation which offers genuine benefit to a buyer because the conveyancer has acted on the site before and already identified issues and agreed appropriate solutions to ensure marketability, with the developer’s lawyer, against developers refusing to accept offers unless their chosen conveyancer is used which is a clear breach of the Consumer Protection from Unfair Trading Regulations.

What we are likely to see is a demand for an overhaul of the builder/developer-conveyancing/solicitor relationship, and this would also include actions for conveyancers on how they educate clients about what they are signing up for. Clearly, in areas like leasehold developments, the CMA has found evidence that the consumer was not aware of the difference between leasehold and freehold, and indeed in some cases were explicitly told there was no difference.

This is where better provision of upfront information will be highly effective, and it’s also been good to see that the CMA has been supportive of all the recent Government announcements in this area, and the ongoing work that is taking place in order to ensure consumers have full and transparent information about what they are signing up for, well before they might feel inclined to put in an offer on a property for example.

The mechanism which we are putting in place to deal with these instances of mis-selling and a lack of upfront information, the BASPI (Buying & Selling Property Information ), will be piloted later this year and it’s our belief that this will greatly help consumers in such circumstances.

On top of this, there will soon be the creation of a New Build Ombudsman and a consumer charter for new-build which will hopefully contain many of the solutions we’ve identified and which will be required to deliver a fairer system. We certainly want to ensure that the new-build BASPI we have drafted will be included in this.

Overall, this update should eventually lead to quite a series of wins for the consumer and should hopefully go some way to identifying the guilty parties and ensuring that those who have been impacted receive recompense, plus we will have a new system which is not able to work in such a way ever again.