Associate solicitor Pippa Garrod, in our Dispute Resolution team, looks at this week's welcome news for many leaseholders following a much-anticipated ruling by the Competition and Markets Authority.
In September last year, the Competition and Markets Authority (CMA) launched enforcement action against four housing developers who it believed ‘may have broken consumer protection law in relation to leasehold homes.’
The action involved four house builders, Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey.
At the time the CMA stated that it had uncovered ‘troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling. It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.’
The CMA also chose to investigate several investors, including Aviva, who purchased freeholds from the above developers and continued to operate what it described as ‘the same unfair leasehold contract terms’.
It was confirmed this week by the CMA, who’s Chief Executive Andrea Coscelli described the news as “a real win for thousands of leaseholders” that both Persimmon Homes and Aviva have agreed to the following undertakings:
- Aviva will remove from leasehold contracts certain clauses which were doubling the ground rents payable by leaseholders. It will also remove terms which were originally doubling clauses and have been converted into RPI-based ground rent terms. Doubling clauses that cause ground rents to double every 10 to 15 years mean people can often struggle to sell or mortgage their homes. They can also affect leaseholders’ property rights. Where Aviva is the current freeholder, those leaseholders’ ground rents will revert to the original amount – i.e. when the property was first sold – and this will not increase over time.
- Aviva has also agreed to repay homeowners who were affected by these doubling ground rent clauses. This means that, where ground rents had increased, people will be refunded the excess money they had paid over this time.
- Persimmon will offer leasehold house owners the option to buy the freehold of their property at a discount, better reflecting what they expected when they originally bought their house. It will also make repayments to certain homeowners who have already purchased their freeholds. This addresses concerns raised by consumers with the CMA, and local Trading Standards, that they were led to believe they could buy their freehold at a certain price, only to find out later that this price had increased by thousands of pounds with no warning. It also means those individuals who have already bought their freehold will receive a refund, meaning they don’t miss out.
- Persimmon has also agreed to extend the timeframe that prospective buyers are given to exchange contracts after reserving a property, and to provide people with more upfront information about the annual costs of buying a home. This addresses concerns that the ‘reservation period’ – i.e. the period of time during which a potential buyer must take a number of steps to progress the purchase – is too short and can pressure the buyer into making a decision, and that more information is needed up-front for consumers to make purchasing decisions.
Mr Coscelli continued: “It’s good that Aviva and Persimmon have responded positively to this investigation, enabling these issues to be fixed for leaseholders,” before adding that the CMA’s work “isn’t done.”
He said that the CMA now “expects other housing developers and investors to follow the lead of Aviva and Persimmon. If not, they can expect to face legal action."
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This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.