Four of the UK’s major housebuilding firms, Barratt Developments, Countryside Properties, Persimmon Homes, and Taylor Wimpey, are facing an investigation surrounding the way leasehold properties are sold. There was some “troubling evidence” uncovered recently suggesting there is a scandal at hand.
Owning a lease, or leasehold, which gives the person the right to use the property. However, leasehold owners still have to get their landlord's permission for any work or changes to their homes. These leases are usually granted for a period, typically, between 99 and 125 years. These leases can, however, be granted up to 999 years. In contrast, with a freehold, the buyer owns the entire property, including the land it is built on.
There are millions of properties in the UK that have been sold as leaseholds. The buyer gets a mortgage to occupy and live in the property. However, they still have to pay ground rent to the owners of the freehold. The freehold is the land that the property is built on.
Buyers of leasehold properties discovered they were tied into contracts that saw the price of ground rents escalate. In some cases, the freehold had been sold on to a third-party. Additionally, they had to pay massive fees for simple home improvements or extensions. After investigating, the CMA also found that some of the ground rent was doubling every decade in some cases.
The leasehold "trap" found some buyers being pressured into completing house purchases very quickly. In some cases, buyers were also informed that they would be able to buy the property freehold for a small sum. Later, they would find out that the freehold would increase to many thousands of pounds. The overall problem is that there are multiple cases of misselling.
Barratt Developers have told the BBC, "the group is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation."
The CMA has demanded information from the four housebuilders about their operations. Other firms have also been told to review their policies surrounding leasehold agreements.
Upon a conclusion of the investigation, the CMA could command a change in the way the firms sell leaseholds and take them to court. The CMA has also commented that if there is substantial evidence to support buyers having been misled, it could tell firms to change the way they sell leasehold deals, and the case could go to court. The CMA has previously said those affected could be refunded.
The CMA told the BBC that they will work with the government on plans for the leasehold market. Some of these plans may include a complete ban of sales of new leasehold properties and reducing the ground rents for new lease agreements to nothing.
