The Competition and Markets Authority (CMA) has published an update report in its investigation into whether there have been breaches of consumer protection law in the leasehold housing market. The CMA has now found that purchasers of leasehold properties have been misled by developers and landlords.
The report addresses concerns about increasing ground rents and warns that the ground rent payable under some leases is so high that the lease could become an Assured Shorthold Tenancy under the Housing Act 1988. If this is the case then it will no doubt surprise many purchasers to learn that despite paying a large premium for their property, they could face losing their home if the ground rent is over £250 a year (or over £1,000 a year in London) and non-payment could lead to their landlord serving an AST termination notice.
The CMA not only expressed concerns about ground rents that are high at the beginning of a term, but also warned of the danger of ground rents that double every 10 years or that are linked to the Retail Price Index. Overly high ground rents can leave purchasers trapped in their homes, unable to sell or re-mortgage due to the level of ground rent and also at risk of a lack of security of tenure.
The CMA also considered complaints regarding unreasonable service charges and permission fees imposed by some managing agents and landlords. Service charges are part and parcel of owning a flat, but the CMA has found that landlords and managing agents often charge excessive fees, even when the work required is minor.
The CMA has recommended that there should be reforms to the system of redress for leaseholders. Currently leaseholders can challenge the reasonableness of service charges at the First-Tier Tribunal (Property Chamber), but this can be a daunting and time consuming exercise.
Concerns were also raised regarding the sale practices of leasehold houses and the fact that many developers may have misled purchasers, the report citing instances where some developers have even claimed that there is no difference between freehold and leasehold properties.
The CMA’s update report follows a recent report by the Law Commission into leasehold ownership, which reached similar conclusions and recommended reforms to make it easier and cheaper for leaseholders to extend their leases and to buy the freehold of their property.
We will have to wait to see whether the government takes action to implement the reforms recommended by the CMA. Until then, if you feel that you have been mis-sold your property, you may have a number of potential remedies against your developer, seller, landlord, managing agent or solicitor.
You may also want to consider taking back control of your property by extending your lease, purchasing the freehold or taking over the management of your building.
The government has also been urged to improve the quality of information provided to consumers in the early stage of the buying process, when potential purchasers initially meet developers.
Other matters of considerable concern for leaseholders buying new properties at the moment are (i) leaseholders being faced with the cost of expensive and urgent works, such as to replace cladding please read here for more information; and (ii) problems encountered with new home warranty insurers failing to meet claims when serious defects emerge after completion of the purchase. Please read more here.
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