CMA Launch Investigation Into Mis-Selling Of Leasehold Property

The Competition Markets Authority (CMA) have revealed that they are launching an investigation into the mis-selling of leasehold property.

In a letter to the committee chair of HCLGC, Andrea Coscelli, Chief Executive of the CMA, emphasised the need to investigate the most onerous areas of leasehold property including permission fees, doubling ground rents and other onerous terms.

The investigation will determine whether these onerous leasehold features can be considered ‘unfair terms’ as legally defined.

Following this, the CMA could bring enforcement proceedings against developers and freeholders responsible of inflicting such terms on leasehold property owners.

The CMA will circumvent their usual route of completing a market study and suggested reforms as so many agencies, including the Government and the Law Commission are already completing similar research.

Instead, the investigation will focus on the legal position of these onerous terms, under consumer protection law, as a way of determining if the processes are operating outside of the law.

Clive Betts, Housing, Communities and Local Government Committee Chair, said:

“The Housing, Communities and Local Government Committee report into leasehold laid bare a system in urgent need of reform, where home buyers are vulnerable to exploitation by freeholders, developers and managing agents. Worse still, we heard extensive evidence from leaseholders regarding onerous ground rent terms, high and opaque service charges and one-off bills, unfair and excessive permission charges, and unreasonable costs to enfranchise or extend leases.

“Over the course of the inquiry we heard evidence suggesting that there are a significant number of cases where home buyers may have been deliberately mis-led about the terms they were signing up to. If the sale of leasehold house has taken place with the home buyer under the impression that they were buying it freehold, or “equivalent to freehold” as many were told, then action needs to be taken. Equally, if a home buyer is told they will be able to buy the freehold in a couple of years, only to find out it has been sold on to another company, then this should be investigated.

“I am pleased that the Competitions & Markets Authority has taken positive action to understand the scale of mis-selling and onerous leasehold terms. Home buyers need to be protected and, where evidence of mis-selling is proved it is right that the CMA take action.”

Andrea Coscelli, Chief Executive of the CMA, commented in a letter to Clive Betts MP:

“We acknowledge the significant concerns that the Committee has raised about leasehold mis-selling, and whether leasehold contract terms are unfair in relation to, for example, ground rent and permission charges.

“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 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.

“In commencing this work – and in concluding that this route is more appropriate than a ‘market study’ which is normally used to uncover the problems in a market and suggest reforms – we are conscious that considerable information gathering on the general problems in the market has already been done through the recent work of HCLGC, the APPG on Leasehold and Commonhold Reform, and others, and that proposals for market reform are already in progress at the Law Commission and in Government, including looking at enfranchisement. The work that the CMA would do on the legal position (under consumer protection law) is envisaged within that overall context, and as complementary to the reform work already under way.”

Wanda Goldwag, LEASE’s Chair, stated:

“We welcome the CMA’s investigation into whether the selling of leasehold property has not been working in the best interests of consumers; and we are happy to help the CMA with its investigation. We look forward to sharing the data we recently published on all the issues with service charges, lease extension and freehold purchase that our staff have handled over the last 5 years.”

Will the review determine that these onerous leasehold conditions are legally defined as unfair? What will this mean for leasehold property in the future?

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