LKP praises report that gives ‘huge impetus’ to government to set new ground rents to zero – promised and undelivered for three years
The Competition and Markets Authority is going to launch a series of court cases against plc housebuilders to resolve the ground rent scandal, it told BBCR4’s authoritative MoneyBox programme this afternoon.
LKP warmly welcomed the CMA report saying it gave huge impetus to the key reform of setting new ground rents to zero, which has been promised by the government since December 2017 and still undelivered.
George Lusty, the CMA’s Senior Director, Consumer Protection, told the programme:
“We will be bringing cases arguing that these businesses have broken consumer law. That these escalating ground rent charges and the mis-selling of homes is illegal.
“We will take those cases to court if we need to. We are going to try to attack the behaviour and try to get people’s money back where we can.
“We are going to do everything we can to sort out this problem. It is having a huge impact. Somtheing has gone really badly wrong. The developers in particular seem to have really failed in their responsibility to treat their customers fairly.”
Presenter Paul Lewis commented “strong stuff” before asking Cath Williams, a co-founder of the National Leasehold Campaign and the owner of a leasehold house in Cheshire, whether she was mis-sold her home.
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“Absolutely. Misled and mis-sold,” Ms Williams replied. “I bought the house in 2011 and there was no mention of leasehold in any of the marketing material. Even on the reservation form when I paid the deposit, which I believe is the point of sale: no mention of leasehold anywhere.
Ms Williams blamed the developer and its sales staff for mis-selling.
“They were very well trained into how to coerce people into buying these properties under false pretences.”
Paul Lewis commented: “You seem to be painting a picture of being systematically misled by the developer and the people who work for them.”
“Absolutely. I am so pleased that the CMA report supports this. I always knew that I had been mis-sold, but it is very difficult to prove, when everything was verbal at the point of sale.
“The first time that I knew the property was leasehold was after I had paid the £500 deposit and £750 for upgrades. On a tick list they went through everything with me and then at the bottom in pencil they wrote “leasehold”.
“At which point I challenged them: ‘Hang on a minute. I thought I had bought a freehold property.”
Paul Lewis asked: “Has this cost you money?”
“It really has. Because my lease was onerous. It [the ground rent] was £295 a year, which is over the £250 threshold. It was more than 0.1% of the property’s value. It was 0.3%. So when I came to sell the estate agent valued the house at £20,000 less than the equivalent freehold market property.
“And then said I might not actually be able to get anyone through the door. So the only way to sell was to buy the freehold. That cost me £15,000 in total.”
Sebastian O’Kelly, chief executive of LKP, was asked whether he was expecting the CMA report to be so strong in its findings.
“No. I am absolutely delighted by it. It is a really strong report that puts the blame squarely on our cartel of plc housebuilders and they have a lot of explaining to do. And it is going to cost them some money.
Compensation is mentioned for the first time in the report: who will get that, and how far back will it go?
Mr O’Kelly replies: “Well, the people who were mis-sold this will get that. There is an example of how this could work with the court case in Cardiff in the summer where leasehold houseowners were mis-sold their properties.
“They got the freeholds and they got back the ground rent that they had wrongly paid. And the issues was settled. We want to see something similar for all the thousands of people who were mis-sold these leasehold properties.”
The case is referenced here:
How far back could compensation claims go?
Mr O’Kelly replied: “I don’t know. That is rather an issue for the CMA to work out. But we are talking about plc housebuilders doing this. They are still trading. They still have reputations to maintain so I think they will now get a proper compensation arrangement in place.”
LKP was also asked about the conveyancing solicitors, who a number of compo claim firms are pursuing for professional negligence.
Mr O’Kelly replied:
“The solicitors have been revealed to be nothing more than stooges for the developers. There is also a huge question mark over whether developers should recommend solicitors in the first place.
“Developers have been saying all along that it is all the fault of the solicitors for not identifying the tricks that they themselves put into the leases in the first place.
“These are toxic leases now in the property market that will be transacted: plc housebuilders need to get rid of them and put them right.”
Paul Lewis responded: “It certainly sounds as thought the CMA agrees with you on that.”
He asked Ms Williams what would be fair compensation.
“At the point of sale I did question whether I could buy the freehold. I was told I could buy it by law two to three years down the line for £2,000 to £3,000. I would have been happy to pay that at point of sale, to be honest.
“I don’t mind paying that. I am not asking for a free house. I would like the 15 grand back minus the £2-3,000 that the freehold would have cost me at the point of sale.”
Pul Lewis commented that this seemed “quite a reasonable demand”. He then asked Mr O’Kelly whether the investors who bought these residential freeholds and levy various charges against the leaseholders should also be paying out.
“Lots of these freeholds have been sold off to private equity speculators in ground rents, usually based offshore, and they have ratcheted up these costs,” replied Mr O’Kelly.
“I have come across a case this week: £15,000 to vary a lease [to RPI from doubling ground rent] because the owners happened to be a buy-to-let investor.
“It will be more difficult to address those administrative charges, but it is the plc housebuilders that are the easier target here and really the people primarily culpable.”
Finally, LKP was asked how important this report was in the wider effort to reform leasehold.
“It is excellent because as well as putting right the issues that have gone wrong, it gives huge impetus to government to reform leasehold and to set new ground rents to zero, which they have promised for three years and still have not done.”
Clive Betts MP, chair of the Communities Select Committee which issued a brilliant report on the leasehold scandal last year, also warmly welcomed the CMA report:
Chair-elect welcomes CMA announcement regarding leasehold mis-selling and unfair contracts – Committees – UK Parliament
Inquiry: Leasehold reform Housing, Communities and Local Government Committee