The Competition and Markets Authority (CMA) has sought to collect substantial information throughout the leasehold sector in its investigation into leasehold mis-selling, however it has revealed that ‘key players in the sector’ refused to co-operate.
Simon Jones, the Head of Litigation at the CMA, revealed at the Westminster Legal Policy Forum:
“We gathered a lot of information from property developers, freehold investors, and from lenders, and we met them all – unless they really didn’t want to meet.”
The investigation focused on the mis-selling of leasehold properties with ‘highly aggressive ground rents which affect the properties’ values’.
At the Westminster event, Mr Jones reiterated how the CMA is not impressed with leasehold practices in relation to the monetisation of service charges:
“A service charge should be compensatory rather than a means of making a profit, although the terms of leases and the practice of landlords often appear to allow or enable a profit to be made through this mechanism.”
With regard to ground rents, Mr Jones followed on with:
“Many of those we spoke to – the institutions and businesses involved – accept that homeowners get nothing in return. That ground rent is simply an income stream for developers tacked onto a contract.”
The concerns raised by the CMA were that leasehold homeowners have been treated unfairly as well as prospective buyers being misled by developers.
On the release of the report Andrea Coscelli, the CMA’s Chief Executive, said:
“We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.
“Buying a home is one of the most important and expensive investments you can make, and once you’re living there you want to feel secure and happy. But for thousands of leasehold homeowners, this is not the case.
“We’ll be looking carefully at the problems we’ve found, which include escalating ground rents and misleading information, and will be taking our own enforcement action directly in the sector shortly.”
Mr Jones highlighted the interest the investigation and report had brought, and how it addressed the fundamental concerns people had:
“I think the attention that it received is testament to the significance of the issues that we are investigating because for many, perhaps the majority of consumers, buying a house or flat will be their largest purchase and their most significant investment.
“Their home ought to be a place of happiness and security … Many consumers, we fear, simply thought they were buying a home and … knew little or nothing about the different forms of ownership [that leasehold is a tenancy agreement which does not give them the underlying asset, whether a house or flat].”
Following the report, the CMA is now looking to launch direct enforcement action against companies it believes have broken consumer protection law by mis-selling and unfair terms.
Sir Peter Bottomley MP questioned Mr Jones, at the event, as to whether certain terms within leasehold contracts that are harmful to consumers could be struck out. Although the CMA do not have the power to strike out unfair or harmful terms, they are able to identify the terms, seek to find a solution with institutions and should this fail, they will ask the court to make a ruling.
It had also been revealed at the Westminster event that consumer group Which? had failed over 5 years to act upon concerns raised over the leasehold system.
The CMA, reiterated by Mr Jones, are calling for clearer information to be made available to both first time leasehold purchasers as well as any future purchasers. The CMA have stated that they are developing consumer advice for people who own or are looking to buy a leasehold property.
