'Pattern of mis-selling' of leaseholds to homeowners prompts calls for competition regulator to take action

Published by Stephen Little on 19 March 2019.
Last updated on 19 March 2019

Landmark ruling ‘devastating’ for leaseholders

MPs are calling for wide-ranging reform of leaseholds to help families trapped in unsellable and unmortgageable homes. 

In a report published today, the Housing, Communities and Local Government Committee found that UK leasehold system has left householders at risk of exploitation by developers.

It is calling on the Competition and Markets Authority (CMA) to investigate mis-selling claims and make recommendations for appropriate compensation.

The report found that the current leasehold system is open to abuse by developers, freeholders and managing agents.

It says that leaseholders are often charged expensive ground rents as well as high service charges and one-off bills.

Ground rents have in some cases risen so high they have left properties unsellable and unmortgageable, while fees have been charged above the reasonable cost of administration.

Elements of current leasehold system that the report says need review include onerous ground rents, high and opaque service charges and one-off bills, unfair permission charges, imbalanced dispute mechanisms, inadequate advisory services, and unreasonable costs to enfranchise or extend leases.

Committee chair, Clive Betts MP, says: “There are some practices that should stop outright. There is no reasonable case for a house to be sold as leasehold.

“Over the course of this inquiry we have heard a number of claims that individuals have been mis-sold.

“Developers are adamant that they have not deliberately misled buyers with false promises or partial sales information. However, the pattern of near-identical stories demonstrate significant failings in the process.”

The freeholder of a property owns the land outright, including the land it is built on. Most houses are freehold, but some are leasehold.

The difference with a leasehold property is that you own the property and its land for a fixed period of time depending on the agreement you have with the landlord – effectively making you a tenant.

Leaseholds usually last between 99 and 125 years, sometimes going up to 999 years.

There are currently four million leasehold homes in the UK, with 1.4 million people in leasehold houses.

Recommendations

The report recommends that commonhold becomes the primary model of ownership of flats in England and Wales.

Commonhold was introduced in 2002 as a new way to own property and allows people to privately own their flat whilst jointly owning communal areas.

Unlike leasehold there is no set time period when you have to leave – you are one of the freeholders.

The committee says that a standardised key features document should be provided at the start of the sales process by a developer or estate agent.

It also recommends the government introduces legislation to remove onerous ground rents in existing leases. Existing ground rents should be limited to 0.1% of the present value of a property, up to a maximum of £250 per year.

Mr Betts adds: “Commonhold works well in other countries but remains little used in England and Wales. There is little evidence that professional freeholders provide a better level of service than can be provided by leaseholders themselves.”

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