Builders told to remove leasehold terms that trap homeowners

Two major home builders have been told to remove contract terms that mean leaseholders have to pay ground rents that double every 10 or 15 years.

The Competition and Markets Authority (CMA) launched enforcement action against 4 housing developers in September 2020. These included Countryside Properties and Taylor Wimpey, for using possibly unfair contract terms, and Barratt Developments and Persimmon Homes over the possible mis-selling of leasehold homes.

The CMA has now written to Countryside and Taylor Wimpey outlining its specific concerns that their use of terms that double the ground rent every 10 or 15 years breaks consumer protection law.

As this increase is built into contracts, it means people can struggle to sell or mortgage their homes, and so find themselves trapped. These terms can also affect their property rights.

To address the concerns, 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. The companies must also agree not to use the terms again in any future leasehold contracts.

Andrea Coscelli, CMA Chief Executive, 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. Countryside and Taylor Wimpey must entirely remove all these terms from existing contracts to make sure that they are on the right side of the law.

“If these developers do not address our concerns, we will take further action, including through the courts, if necessary.”

Countryside and Taylor Wimpey now have the opportunity to respond to the CMA’s detailed concerns and avoid court action by signing formal commitments – known as ‘undertakings’ – to remove the ground rent terms from their leasehold contracts.

As part of its review of the leasehold sector, the CMA will also continue to investigate certain firms – such as investment companies – which bought freeholds from these developers and have continued to use the same leasehold contract terms. Its investigation into Barratt Developments and Persimmon Homes is also ongoing.

Please contact us if you would like advice the legal aspects of buying or selling a home, both freehold and leasehold.