It was confirmed by the Competition and Markets Authority (CMA) last week that Countryside Properties has voluntarily given formal commitments to remove terms from existing leaseholders’ contracts that cause ground rents costs to double every 10 or 15 years.
Additionally, it has been confirmed that Countryside Properties has agreed to remove terms “which were originally doubling clauses but were converted so that the ground rent increased in line with the Retail Prices Index (RPI).” The CMA deemed that the original ground rent terms were unfair and should be ‘fully’ removed, instead of being replaced with another similar term that still increases ground rent costs.
As a result of this action, affected Countryside Properties leaseholders will now have their ground rents fixed at the original amount. Countryside Properties has also stated that it is no longer selling leasehold properties with doubling ground rent terms.
Andrea Coscelli, Chief Executive of the CMA, said:
“Leaseholders with Countryside can now breathe a sigh of relief knowing they will no longer be forced to pay these doubling ground rents. No one should feel like a prisoner in their home, trapped by terms that mean they can struggle to sell or mortgage their property. We will continue to robustly tackle developers and investors – as we have done over the past 2 years – to make sure that people aren’t taken advantage of.
“Other developers, such as Taylor Wimpey, and freehold investors now have the opportunity to do the right thing by their leaseholders and remove these problematic clauses from their contracts. If they refuse, we stand ready to step in and take further action – through the courts if necessary.
“This is the kind of issue that could be resolved at pace and met with fines if the CMA receives the consumer powers that the Government is currently consulting on.”
The Housing Secretary, Robert Jenrick, commented:
“We asked the CMA to investigate the use of unfair practices in the housing market, such as doubling ground rents – and I welcome their continued success in bringing justice to homeowners.
“This settlement with Countryside will mean thousands more leaseholders are given the fair treatment they deserve and marks the third major agreement with leading UK developers and investors. I strongly urge others to follow suit and end these historic practices.
“We will continue to support leaseholders who may have been mis-sold properties and our new legislation will put an end to this practice for future homeowners, by restricting ground rents in new leases to zero.”
CMA investigation
This news comes as a result of an investigation launched by the CMA in 2019 into leaseholder agreements being used by four housing developers. The housing developers being investigated were Countryside Properties and Taylor Wimpey, for using possibly unfair terms, and Barratt Developments and Persimmon Homes, over the possible mis-selling of leasehold properties.
In respect of Countryside Properties and Taylor Wimpey, the CMA found that the ground rent terms used in their leasehold agreements were “unfair” on buyers and were being used to “trap” them as they would find it difficult to sell or mortgage their homes after they have entered into a leasehold contract with doubling ground rent terms.
It has already been confirmed by the CMA that: “Aviva [which buys freeholds from house builders] has committed to remove certain terms from its leasehold contracts which cause ground rents to double, and Persimmon will now offer leasehold house owners the opportunity to buy the freehold of their home at a discounted price.”
The CMA’s investigation into Barratt Developments and Taylor Wimpey is ongoing.
Leasehold scandal
As mentioned above, there have been a number of CMA investigations and other reports concerning unfair fees in leasehold arrangements in recent years.
In the 2000s, developers started to increasingly sell homes on a leasehold, rather than freehold, basis – often without the buyer fully understanding the contracts they were entering into. In some cases, the freeholds were then sold to offshore investors, who have since demanded large sums from homeowners to buy out these contracts.
Historically, ground rent costs were low – no more than around £50 per year. However, in recent years, housebuilders have started to increase ground rents to an initial charge of between £250 to £500 a year.
They have also added clauses in the lease that allow them to review the ground rent periodically, for example, every five, 10 or 25 years. Typically, the review clause allows the freeholder to increase the ground rent at each review.
In theory, a ground rent that doubles every 10 years doesn’t sound too bad. However, most leases are set for a long term, such as 999 years. If a ground rent of £250 per year doubles every 10 years, the leaseholder can expect to pay £16,000 per year after 60 years!
Other payments provided for in long leases can include fees charged by the freeholder to the property, such as building an extension or for agreeing to a re-mortgage of the property. Ownership returns to the freeholder when the lease comes to an end.
Unfair ground rent charges and compensation claims
Despite the action taken by the CMA, many leaseholders are still trapped with leases with onerous ground rent provisions that negatively impact the value of their property and prevent them from selling.
In such cases, they may have a claim against the conveyancers/solicitors who dealt with their purchase if they failed to properly advise them of the risks.
How can Nelsons help?
If you are concerned about the ground rent provisions in your leasehold, please call a member of our expert Dispute Resolution team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online enquiry form.