The CMA’s damning report on leasehold abuses – what does it mean for leaseholders?

fullsizeoutput_16c8The Competition and Markets Authority (CMA) released their report on leasehold abuses on 28 February 2020 and it is a damning report which condemns the practice of both the developers and freeholders.

The report outlines important areas where the CMA considers that the law needs to change in order to prevent harm to the public in the future. ‘The issues it has identified have caused, and will continue to cause, significant harm to leasehold homeowners’. The CMA then say they are ‘preparing to take enforcement action in relation to two key issues. First, to tackle certain instances of mis-selling of leasehold property. Second, to address the problems faced by homeowners from high and increasing ground rents’.

Then in a statement which must have triggered a thousand ‘crisis meetings’ in the offices of developers, freeholders and their solicitors, it says: ‘The CMA enforces consumer protection law……. through the courts.’

The big battle we have been involved with to get justice for leaseholders who have been ripped off by the scam of leasehold, and force legislation change, has been an emotional one. A negative statement from a dumb housing minister sent our moods crashing and a fabulous report by the Select Committee made us all ecstatic. This well researched and comprehensive report by the CMA is one of our high points.

What are the main findings of the report?

The report highlights various areas of concern, the main ones being:

Mis-selling

The majority of people purchasing new houses, mostly with the Government’s help to buy scheme, were seriously mis-advised on the nature of the leasehold of the properties they were buying. As many were first time buyers, it would make sense that the advice they received and the true nature of what they were buying would be spelt out in a clear and transparent way. The very opposite was true.

The leasehold nature of these properties was designed as a financial trap from the off and potential purchasers were given scant or no information. Often the solicitors they were recommended to use for the purchase were imposed by the developers. Often, they were given no choice in which solicitors they must use. In the extensive files we have seen, no leasehold advice was provided at point of sale.

It comes as no surprise then that the CMA ‘has found serious evidence of mis-selling by the developers regarding their leasehold house sales’. They promise legal action against any developers refusing to right the wrongs they created.

This is music to the ears of leaseholders caught in this trap who have had to live through unimaginable stress as they saw their property value plummet and their homes become unsellable. This was all due to the hidden details of the leasehold scam.

Ground Rent 

With refreshing honesty, the CMA examine high ground rents which were demanded for leasehold houses. Let’s just remember here that there was no reason at all that these houses should have been leasehold in the first place. They should have been freehold. There is even less reason that these houses should have any ground rent payment.

The imposition of a high ground rent then exists for the sole purpose of making money for the ground rent investors. The developers who sold houses with these ground rents knew that the freeholders would pay more per freehold if the ground rent was higher.

So, they sold their customers into a lifetime of debt. They forced them to pay a fortune to buy the freeholds of their homes and left them with unsellable houses. Greed, so they could make a few hundred quid extra per freehold. How companies can get away with treating their customers in such an abusive and disdainful way is shocking.  We can only hope that now the truth is out their brand, and share price, is seriously damaged.

The CMA concur with this and state that ground rent ‘is not legally necessary for there to be a valid lease’ and they continue ‘Nor have we seen persuasive evidence that it is commercially necessary’. It goes further by stating ‘that ground rent serves no purpose what other than to create a revenue stream for the asset class of ground rent investors’.

Ominously for the developers they continue ‘The CMA is preparing to take enforcement action to address the difficulties faced by homeowners from high and increasing ground rents’.

Good.

Assured shorthold tenancy (AST)

The report raises the very serious issue of a leasehold property becoming an Assured shorthold tenancy (AST). A leasehold property becomes an AST if the ground rent is more than £1,000 pa in London or £250 in the rest of the country.

Simply put, if a leasehold property becomes an AST this means that if there are ground rent arrears of more than three months, the freeholder can Serve a Section 8 Notice for repossession of the property and the courts do not have the power to grant relief from the Section 8 Notice and the freeholder will get the property. This seriously affects the security of a person’s home. The Government need to act quickly. For a full explanation of the implications of this read Giles Peaker’s excellent blog: When a long lease is a shorthold.

Most of the leasehold houses I have seen had a ground rent of £250 or more at point of sale. When the leasehold scam was devised was this part of the developer and freeholder’s plan? If it was it is pure criminal, and the perpetrators should be punished.

The CMA recognise that this is hugely unjust. It states, ‘The problem of assured tenancies is both very serious and one that can also be dealt with through legislation’. Let’s hope it happens.

Fees for licences and permissions

We all now know the horror stories of freeholders demanding thousands of pounds for their needless permissions. We see leaseholders charged for permission to build a conservatory, change use of a garage, change a carpet in a room, paint a room or even erect a For Sales board.

Not content with the huge ground rent incomes, the freeholders were determined to squeeze every single penny they could from the unsuspecting leaseholders and funnel it into their fat offshore accounts. These freeholders lack a conscience, morals or common decency and they need to be made to pay.

The CMA too say they have ‘seen significant evidence that freeholders abuse the fees they charge for various licences and permissions’. They call for this practice to be halted as soon as possible.

The sooner the better we say.

Conclusion

I fully praise the CMAs excellent report, it is well researched, honest and insightful and I commend its authors. It is what we were hoping for from the Law Commission last month but what we got was a damp squib.

Make no mistake though, this report and the actions of the CMA will not end leasehold abuses and take away the injustice. As the report acknowledges, the power to make the necessary legislation changes rest with Government.

It is though, a very serious body blow to the developers, freeholders and their legal advisors. For us to finish them off we need to ensure the Government know how political leasehold has become and they must be pushed to make significant changes to legislation. We need to write to our MPS, go and see them, make a noise in the press and on social media.

Now is the time to end the abuses of the leasehold system once and for all. If we miss this opportunity, we may not get another one for many years.

Read the full report here:

https://assets.publishing.service.gov.uk/media/5e57e4ea86650c53b74fe6e0/Leasehold_update_report_pdf.pdf?fbclid=IwAR1UqwnJT3gPmBc6Img17cxBydkIgbj7FNYuFuNOs4hRUh_M4WeKjS5YClc

4 Comments

  1. Yet again Louie Burns has provided a clear concise overview of the CMA report to help leaseholders navigate through their findings – thank you. At last I feel that real redress against leasehold mis-selling is, if not just around the corner, just over the next hill and to the left a bit.

  2. Thank you Louie Burns for yet again providing a clear concise overview of the CMA report. At last I feel that leaseholders who were mis-sold can look forward to some form of redress which is, if not just around the corner, is just over the hill and to the left a bit.

  3. Surprised there are no comments. We’ll, I’m delighted to be the first and would like to acknowledge, with sincere thanks, your efforts over the years to bring this feudal injustice to an end. Leasehold tenure has no place in the modern world.

  4. This means every leasehold retirement flat sold in the last 20 years are indeed assured tenancies. If the government or CMA act then there can be no difference between the property type, flat or house. There cannot be one set of rules for one only. We must ensure that the freeholders do not see retirement flats as a way to recoup profits from the potential loss in ground rent incomes or other fees from the house builds. Retirement flats are usually bought cash, so do not have the added protection of a mortgage company paying outstanding charges, making them more vulnerable to forfeiture.
    I imagine there are house owners now who have either bought their freehold at inflated prices or paid to convert to RPI. I hope retrospectively they can be put into the position where they would have been if the contracts were not onerous.
    I`m afraid this government and their freeholder donating cronies will be strategising and delaying the whole process.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s