The Competition and Markets Authority is launching enforcement action against four housing developers it believes may have broken consumer protection law in relation to leasehold homes.
The CMA is investigating into Barratt Developments, Countryside Properties, Persimmon Homes, and Taylor Wimpey.
The authority said it uncovered troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling.
Anna Bailey, chief executive of Leasehold Group, said: “We have been fighting for the rights of leaseholders for 18 years and finally we are starting to see positive action following the largely ineffective pledge made by builders.
“There has never been any justification for selling new houses as leasehold, it has simply been a way for housebuilders to enhance their profits at the expense of buyers.
“We have always said that the only way to address the practice was by positive action, so we are delighted that the CMA is finally showing its teeth and hope that this change in stance will herald the beginning of the end of the new build leasehold scandal.”
The CMA concerns about developers failing to explain clearly exactly what ground rent is, whether it increases over time, when increases will occur and by how much.
It also found evidence that some people were told properties on an estate would only be sold as leasehold homes, when they were in fact later sold as freeholds to other buyers.
Buyers have also been misled about the cost of converting their leasehold to freehold ownership, with some being told it would only cost a small sum despite it increasing by thousands of pounds in future.
There is also the suggestion that developers are using unfair sales tactics – such as unnecessarily short deadlines to complete purchases – to put pressure on buyers to secure a deal.
There have long been tales of of unfair contract terms that mean homeowners have to pay escalating ground rents, which in some cases can double every 10 years.
The CMA also raised concerns about the fairness of escalating ground rent terms linked to the Retail Price Index, adding that these are not always effectively explained by developers.
The authority will also be investigating certain firms who bought freeholds from these developers and have continued to use the same unfair leasehold contract terms.
Andrea Coscelli, CMA chief executive, said: “It is unacceptable for housing developers to mislead or take advantage of homebuyers. That’s why we’ve launched today’s enforcement action.
“Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been mis-selling or unfair contract terms, these will not be tolerated.”
This post has originally been featured in Property Wire.