The Competition and Markets Authority (CMA) has given the UK’s top four residential developers six months to ‘get their leasehold houses in order’ or risk being taken to court, Property Week can reveal.
Last week, the CMA warned the big four developers that it had found evidence of unfair terms in contracts with homebuyers and potential mis-selling.
Sources familiar with the CMA’s investigation into the scandal said it had told Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey that in order to avoid court action, they would need to agree to refund customers and hand over freeholds to buyers who were sold expensive leasehold deals.
“The CMA is unlikely to go straight to court. But there is evidence of mis-selling and unfair contract terms, so the developers will have around six months to come to an agreement with their customers that the CMA believes is fair,” one source with knowledge of the watchdog’s proposal told Property Week.
“If the housing companies agree to compensate customers and hand over freeholds, and demonstrate they are implementing these corrections, then the CMA will not need to take court action. However, the CMA will be watching closely and if the housebuilders do not show they are sticking to these agreements, then it will take them to court in the New Year.”
Last week, the CMA claimed some leasehold buyers were being hit with ground rents that doubled every decade, and said others were wrongly told they were unable to buy the freehold on a site.
It said it was particularly concerned about the fairness of escalating ground-rent terms linked to RPI and that these were not always effectively explained by developers when discussing RPI-based ground rent with prospective homeowners.
The CMA is also investigating firms that bought freeholds from these developers and have continued to use the same unfair leasehold contract terms.
Sebastian O’Kelly, director at the Leasehold Knowledge Partnership, said: “This is a sector that has long required more oversight, and at last it is getting it. These companies would be well advised to sort out the mess they made over ground rents before the CMA takes them to court.”