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(Alliance News) - The UK competition regulator said Friday it has found "troubling evidence" house developers have handed out "potentially unfair" terms concerning ground rents in leasehold contracts and potential mis-selling.
As a result, the Competition & Markets Authority has launched an enforcement action as it believes housebuilders may have broken consumer protection law.
The CMA has written to four London-listed developers over the action, outlining its concerns: Barratt Developments PLC, Countryside Properties PLC, Persimmon PLC and Taylor Wimpey PLC.
"The move comes after the CMA uncovered troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling. It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers," the watchdog said.
Barratt responded Friday saying it is "committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation".
Taylor Wimpey also noted the enforcement action, adding: "The board takes this very seriously and Taylor Wimpey will continue to fully cooperate with the CMA, provide the further information to be requested by the CMA in the coming weeks and work with them to better understand their position."
Countryside echoed its larger peers, commenting: "We are committed to resolving this issue to the satisfaction of our customers and will continue to co-operate fully with the CMA's ongoing investigation."
Persimmon said some of its properties were sold on a leasehold basis in the past but noted - following consultation with government, stakeholders and customers - it took the decision to stop selling leasehold houses where Persimmon owns the land freehold in 2017.
Persimmon added: "Any customers of a Persimmon leasehold property in the last six years have been given the right to buy their lease at below market value and many have done so. We look forward to engaging fully with the CMA on this issue as they continue their investigation."
The CMA will also be investigating certain firms who bought freeholds from these developers and have continued to use the same unfair leasehold contract terms.
The watchdog's chief executive, Andrea Coscelli, said: "It is unacceptable for housing developers to mislead or take advantage of homebuyers. That's why we've launched today's enforcement action.
"Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been mis-selling or unfair contract terms, these will not be tolerated."
How the case proceeds, the CMA noted, will depend on the regulators assessment of the evidence. Possible outcomes include legal commitments from the companies to change the way they do business, or if necessary, the CMA could take firms to court.
The CMA also said it will continue to work with the UK government on its reform plans for the leasehold market, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.
Shares in Barratt were up 0.2% in London on Friday mid-morning, while Countryside Properties was up 0.7%, Persimmon was 0.9% lower and Taylor Wimpey was up 0.2%.
In other housebuilding sector news, blue-chip Berkeley Group Holdings PLC - which was not mentioned in the CMA action - held its annual general meeting Friday, and commented its trading has been "resilient" to start financial 2021, the four months to the end of August.
As a result, the housebuilder has confirmed its existing annual pretax profit guidance of GBP500 million and has committed to its shareholder returns programme of GBP280 million per annum.
In financial 2020, ended April, the Cobham, England-based property developer recorded pretax profit of GBP503.7 million.
"The start of this new financial year coincided with the evolving Covid-19 pandemic and the nationwide lockdown measures introduced to manage its impact upon the whole country. This has set unprecedented challenges for businesses to manage," the company said.
Berkeley now expects "a more even split" of profit between the first and second halves of the year, due to levels of production that have been "better than initially anticipated" and its decision not to furlough staff.
The housebuilder noted its efficiency levels are now at around 90% of normal, but production continues to be hurt by the need for Covid-modified working.
"In overall terms, this has been offset by the continued investment in bringing forward our portfolio of over 25 large regeneration developments accumulated over recent years," Berkeley added.
The housebuilder also noted its sales pricing has been "robust".
"This has been supported by the demand for Berkeley properties in under-supplied markets, good mortgage availability and the welcome support from government for the sector, including the temporary removal of SDLT for the first GBP500,000 of sales value and the announcement of a brief extension to the current Help to Buy scheme," Berkeley continued.
The value of underlying sales reservations for the first four months of the financial year is around 20% below the annualised run rate for last year, Berkeley said, which is "supportive" of forward sales remaining around its year-end position of above GBP1.8 billion.
"This is a strong position, providing good visibility over the next two years of earnings," Berkeley added.
Berkeley shares were 1.5% higher at 4,718.00 pence in London on Friday.
By Paul McGowan; paulmcgowan@alliancenews.com
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