The UK competition watchdog has launched an investigation of the property market to find out if consumers have been mis-sold leases or forced to agree to unfair terms when they bought new homes.

The investigation comes in the wake of a scandal that blew up in 2017, when it emerged that leases on some new properties contained onerous provisions such as ground rents that doubled every 10 years and high fees for any repairs.

The Leasehold Knowledge Partnership, a campaign group, has estimated that about 100,000 homeowners could be locked into such contracts.

In the UK, 4.3m properties are owned by leaseholders, who buy the right to occupy a property for a fixed period — often between 90 and 120 years — from the freeholder who owns it outright.

Leasehold terms include service charges and ground rents payable to the freeholder.

Historically, these charges have been relatively stable. Since the 2000s, though, developers have offered more
properties as leasehold and started selling these charges as income streams to investors.

The onerous terms in some of the leases have also made the properties more difficult to sell on when homebuyers want to move.

As part of the fallout from the scandal, housebuilder Taylor Wimpey set aside £130m to compensate buyers and the government proposed to cap ground rents at £10 a year.

In May, Liverpool council moved to block housebuilder Countryside from building new homes in the city, citing the leasehold scandal.

In its inquiry announced on Tuesday, the Competition and Markets Authority will investigate whether leasehold agreements are fair and whether buyers are being provided with enough information about their new leases.

“It’s essential [buyers] fully understand the contract they are signing, including whether they will have to pay more than they bargained for,” said George Lusty, a senior director at the CMA.

The watchdog said it would be contacting “a range of market participants”, including freeholders and developers, as part of the investigation.

Sebastian O’Kelly, of the Leasehold Knowledge Partnership, said one problem was that property developers commonly recommended their own solicitors to customers to complete the homebuying process. That presented “an impediment to people getting independent advice”, he said.

Chris Millington, an analyst at Numis Securities, said: “Clearly, [housebuilders] had a pretty chequered past. But, where possible, most have looked to remedy problems. They’ve gone a long way to cleaning up their act, but there’s still a little bit to do.”

source financialtimes