The Competition and Markets Authority is to probe property investment companies that have purchased freeholds from developers and that go on to use the same contract terms.
The revelation has come to light in the small print of a high profile announcement by the CMA regarding house builders Countryside and Taylor Wimpey.
Over the weekend the authority issued a statement saying it had written to Countryside and Taylor Wimpey, ordering them to remove contractual terms which could mean a doubling of ground rent every 10 or 15 years.
In some cases, investment companies may have bought the ground rent rights from developers - hence the CMA probe.
“As this [ground rent] increase is built into contracts, it means people can struggle to sell or mortgage their homes, and so find themselves trapped. These terms can also affect their property rights” the authority statement says.
Countryside and Taylor Wimpey now have the opportunity to respond to the CMA’s detailed concerns and avoid court action by signing formal commitments – known as ‘undertakings’ – to remove the ground rent terms from their leasehold contracts.
Andrea Coscelli, CMA chief executive, says: “These ground rent terms can make it impossible for people to sell or get a mortgage on their homes, meaning they find themselves trapped. This is unacceptable.
“Countryside and Taylor Wimpey must entirely remove all these terms from existing contracts to make sure that they are on the right side of the law.
“If these developers do not address our concerns, we will take further action, including through the courts, if necessary.”
And Housing Secretary Robert Jenrick says: “This behaviour must end and I look forward to appropriate redress being forthcoming for leaseholders.
“The government is pursuing the most significant reforms to leasehold in forty years, including by protecting future homeowners, restricting ground rents in new leases to zero and ending the use of leasehold in new houses altogether.”
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