In its press release on 19 March 2021, the Competition and Markets Authority (CMA) stated that “the CMA is requiring the removal of ground rent terms which it thinks are unfair from all existing Countryside and Taylor Wimpey contracts to make sure they are no longer in breach of the law.”
Although this is broadly good news, a number of observations arise from this:
The CMA has only written to two developers – Taylor Wimpey and Countryside, requiring them to remove the unfair ground rent terms from their contracts. This is presumably in the hope that if those two developers fall in to line, other developers will too.
But it only applies to ‘existing contracts’ and each of these words deserves a closer look:
How does this help owners of all of the leases with escalating ground rents which have been entered into over the last few years, after entering into a contract? The CMA states in its press release that:
“The main provisions of consumer protection legislation relevant to the CMA’s concerns about ground rent terms are the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) and Part 2 of the Consumer Rights Act 2015 (CRA)”.
But UTCCRs were rescinded by the CRA 2015, although all contracts entered into before 1 October 2015 remain protected by UTCCRs. So do the CMA’s proposals relate to contracts entered into before 1 October 2015 (where the new leases will almost certainly have been completed by now) or contracts to enter into a new lease where completion of the lease has not yet taken place? Which is it?
A lease is a form of contract – so are existing leases included? It would seem not. The Consumer Rights Act 2015 (CRA) deals mainly with goods, digital content and services. The CRA also imposed certain obligations on letting agents. Section 85(1) relates to fees payable to lettings agents in connection with ‘assured tenancies’ and section 88(1) then defined an ‘assured tenancy’ as one which is defined by the Housing Act 1988 except where the tenancy is a ‘long lease’. And the same section defines a ‘long lease’ as one to which Chapter 1 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993 applies. And section 7 of the LRHUDA 1993 enacts that a ‘long lease’ must be in excess of 21 years when granted. So the CRA can’t apply to long leases of over 21 years at the date when they were granted.
So, as things stand, these proposals will benefit very few people and do nothing to address the many leases with escalating ground rents which have already been granted.
The only way the CMA can enforce its proposals is through the Courts and, to be fair, the CMA has threatened action through the Courts, but it is difficult to see how the Courts can enforce something which the legislation doesn’t apply to.
And yet, Andrea Coscelli, Chief Executive of the CMA, has said: “These ground rent terms can make it impossible for people to sell or get a mortgage on their homes, meaning they find themselves trapped. This is unacceptable”.
The people who find it ‘impossible to sell their homes’ or who ‘find themselves trapped’ can only mean the people who have already entered into leases with escalating ground rents, as the result of signing a contract with unfair terms in it. So the CMA must be thinking about all of the people who have entered in to these contracts in the past, otherwise what he says makes no sense.
And because leases with escalating ground rents were set up in this manner to provide a valuable investment in the future, it is likely that a lot of these freehold reversions will have been bundled up and sold off as packages to investors. So how will the CMA deal with cases where portfolios of freehold reversions with escalating ground rents has been sold off and paid for? After all, the contract between the buyers of the portfolios and the developers which sold will have been on fair commercial terms. How will the CMA un-pick the acquisition of an investment portfolio, acquired on fair commercial terms and paid for, from the sale of leases with escalating ground rents on unfair terms which form the subject matter of the later contract or compensate the parties who have purchased often paying significant sums for the acquisition? There are quite a number of investors who hold very sizeable portfolios and who would see their investments pretty much wiped out.
Let’s hope the CMA can sort this out because, if it can use consumer legislation to re-write pre-existing contracts and leases, what will it not be able to do next, short of walking on water? Overhaul the enfranchisement legislation which is currently the subject of a very cautious 1,000 page report from the Law Commission?
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