Crackdown On Housebuilders In Leasehold Overcharging Scandal

Housebuilder Persimmon and insurer Aviva are to refund leaseholders after a UK ground rent inquiry by the watchdog uncovered evidence of overcharging.

Thousands of leaseholders will be refunded unfair ground rents and allowed to buy the freehold of their home at a discounted price. Following ‘troubling evidence’ uncovered by the Competition and Markets Authority (CMA) that leasehold homeowners and prospective buyers were overcharged and misinformed by the UK’s largest housebuilders, Persimmon Homes and Aviva have agreed to offer the refunds.

Campaigners, describing the new agreements as ‘life-changing’ and a ‘massive milestone’ in the battle to obtain a fair deal for home buyers, called for fellow developers and freeholders to step up to the plate.

Aviva, the insurer that bought freeholds from developers, has agreed to repay some homeowners who bought their freeholds and abolish ground rent terms considered to be unfair. Similarly, Persimmon will repay some homeowners who bought their freeholds and offer leasehold homeowners the opportunity to buy the freehold of their property at a discounted price.

Dean Finch, Persimmon’s CEO, said the company would extend its right-to-buy scheme to cap the purchase price of a freehold at £2,000 for any house leases sold from 1 January 2000 until the end of 2026. He went further, saying buyers who had already acquired their freeholds from the company under the existing scheme, and who still owned the freehold, could apply to be reimbursed for the price paid over and above £2,000.

Additionally, the housebuilder has agreed to extend the length of time prospective buyers are given to exchange contracts after reserving a property, due to concerns that a short time limit could pressure buyers into making a purchase they would not otherwise have done, if given more time to consider.

Ground rents designed to double every 10 years

Aviva said it would contact around 1,000 leaseholders to confirm the next stage of its plans.

The CMA‘s investigation into unfair leaseholds in October uncovered evidence that homeowners and prospective buyers were being coerced by developers who offered misleading terms and charged excessive fees.

The watchdog pinpointed a number of exploitative measurers such as homeowners having to pay steeply rising ground rents, which in some cases were designed to double every 10 years, resulting in people struggling to sell their homes. Some potential leasehold homebuyers had been told erroneously that it would be cheap to convert a leasehold to a freehold, only to discover that the cost had risen by thousands of pounds, with little or no warning.

The National Leasehold Campaign hailed the change of heart as ‘Another massive milestone,’ in a comment on Twitter. Persimmon and Aviva, they said, have at last done the right thing and other developers and freeholders must now follow suit.

As the investigation has focused on the UK’s largest housebuilders, scrutiny of Barratt, Taylor Wimpey and Countryside continues and they could face legal action if they do not agree terms with the regulator.

Future leaseholders to be protected

Andrea Coscelli, CEO of the CMA, said the voluntary measures agreed by Persimmon and Aviva were a genuine win for thousands of leaseholders. For too long, she said, people have found themselves trapped in homes they struggle to sell or have been presented with unexpectedly high prices to buy their freehold. They can now breathe a sigh of relief knowing the situation is set to change for the better, she added.

It is good news that Aviva and Persimmon have responded positively to this investigation, enabling these issues to be remedied for leaseholders, but the authority’s work is not finished, she said. They expect other housebuilders and investors to follow the example of Aviva and Persimmon, and if they fail, they can expect to face legal action.

Robert Jenrick, the housing secretary, said in response that the Government had introduced new legislation ‘that will protect future homeowners by restricting ground rents in new leases to zero’. He added he would ‘strongly urge other developers to follow suit in changing their historic practices’.

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