(Alliance News) - The UK's Competitions & Markets Authority on Friday said it is requiring Taylor Wimpey PLC and Countryside Properties PLC to remove contract terms that require leaseholders to pay ground rents that double every 10 or 15 years.
Back in September, the CMA launched enforcement action against housebuilders Taylor Wimpey and Countryside Properties for using "possibly unfair" contract terms, and against Barratt Developments PLC and Persimmon Homes, part of Persimmon PLC, over "possible mis-selling" of leasehold homes.
"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 in September.
The CMA said as the ground rent increase is written into contracts, people may struggle to sell or mortgage their homes, believing this to break consumer protection law. It wants the companies to agree not to use the terms again in any future leasehold contracts, the regulator added.
In response, Taylor Wimpey on Friday confirmed it received the CMA's letter. "We will continue to cooperate with the CMA, and work with them to find a satisfactory resolution, within the required timescale," the company said.
It noted that it had stopped selling leases containing 10-year doubling ground rent clauses on new developments from January 2012.
"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," it had said in September.
CMA Chief Executive Andrea Coscelli said on Friday: "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."
The regulator noted in September 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 to reduce ground rents for new leases to zero.
The CMA said on Friday its investigation of Barratt Developments and Persimmon Homes continues. "The CMA has not yet reached a view on whether Barratt Developments or Persimmon Homes have been involved in any or all of the outlined practices," it said.
The regulator said it also will continue to investigate investment companies that bought freeholds from the developers and have continued to use the same leasehold contract terms.
"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," UK Housing Secretary Robert Jenrick commented on the CMA decision.
Shares in Barratt were down 0.2% at 765.60 pence in London on Friday, while Countryside Properties was down 0.9% at 520.00p, Persimmon was 0.5% lower at 2,939.00p and Taylor Wimpey was down 1.0% at 183.00p.
By Zoe Wickens; zoewickens@alliancenews.com
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Barratt Developments (BDEV)
Persimmon (PSN)
Taylor Wimpey (TW.)