The CMA’s consumer protection law investigation will examine potential mis-selling and potential unfair terms.
The Competition and Markets Authority (CMA) has launched an investigation into the leasehold market to find out whether people are being treated fairly when buying their home.
This follows ongoing concerns about the fairness, clarity and presentation of some leasehold contract terms, which could lead to people being stung by costly fees over a long period or having to abide by onerous terms.
The CMA’s consumer protection law investigation will examine potential mis-selling and potential unfair terms.
George Lusty, senior director for consumer enforcement at the CMA, said: “Buying a home is one of the most expensive and important purchases a person can make. So, it’s essential they fully understand the contract they are signing – including whether they will have to pay more than they bargained for.
“Our investigation will shed light on potential misleading practices and unfair terms to help better protect people buying a home in future.”
Potential mis-selling are whether people who have bought a leasehold property are given the information they need to fully understand the obligations they are taking on.
This may include the requirement to pay ground rent over a certain period of time, or whether they have an accurate understanding of their ability to buy their freehold.
Potential unfair terms are whether people are having to pay excessive fees due to unfair contract terms.
This will include administration, service, and ‘permission’ charges – where homeowners must pay freeholders and managing agents before making home improvements – and ground rents, which in some cases can double every 10 years.
The CMA is writing to companies across the sector – including developers, lenders and freeholders – requiring information to understand more about how leaseholds are sold and managed, and the terms their contracts contain.
It also wants to understand the impact such practices have on homeowners, and so is calling on people to share experiences that could be relevant to its work.
If the CMA thinks that a company’s practices are misleading – or that its contracts contain unfair clauses – it could take enforcement action to require the company to change how they operate.
Lawyers representing hundreds of people who are trapped in onerous leasehold agreements on new build properties have welcomed the CMA’s investigation into potential mis-selling.
The cases being investigated by legal firm Simpson Millar involves legal action against conveyancers who failed to fully inform clients of the restrictions and rising costs associated with the leasehold agreements.
Robert Godfrey, partner and head of professional negligence at Simpson Millar, said: "We represent hundreds of people who feel they are now locked into leasehold deals that make selling their homes tricky, or cost a fortune in ground rents.
"A lease is a very complex document which needs to be carefully and simply explained to clients so they can understand the issues which may arise and make an informed decision in continuing with the purchase.
"Many of our clients feel they did not have the full extent of a lease explained to them by their conveyancers. We therefore welcome the investigation and urge the CMA to take into consideration not only the financial, but also the emotional impact that this has had on victims as part of their Inquiry."
