CMA to take enforcement action on leasehold property sales

CMA to take enforcement action on leasehold property sales

This article was published on: 12th May 2020

The Competition and Markets Authority (CMA) is currently reviewing allegations that developers have treated homeowners unfairly or have misled buyers.

The CMA issued a press release in late February 2020 in which they consider there have been a number of serious failings in the residential leasehold market.  One failing identified is leasehold owners having to pay excessive and often escalating ground rents.  Another relates to mis-selling of leasehold property.

Planned reforms to the housing market to address these issues could take many different forms, but options being considered include reducing ground rents for new leases to zero.

The CMA has confirmed it is preparing to take enforcement action in relation to both of these “key issues”, as the release confirms at paragraph 94.

The twin threats of imposed reform and enforcement action clearly bring financial consequences along with them – internal costs will need be incurred in implementing reform, balance sheets will be affected and financial penalties could, in principle, be imposed. Whether action by the CMA results in any sort of slowdown in the leasehold market, and in the viability of certain developments, remains to be seen.

Ground rents are often justified on a number of grounds – that commercially unviable land is developed, or that houses become more affordable.  The CMA is concerned, however, that there is “little justification” for ground rents.

The report concludes by confirming that further information will be published in the “coming months”, which will set out the CMA’s intended enforcement action, so expect a further announcement soon.

Author: Matt Pugh, Partner

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