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The competition watchdog has launched legal action against four of the UK’s top home developers – Barratt, Persimmon, Taylor Wimpey and Countryside Properties – after an investigation uncovered evidence that homeowners under leasing and prospective buyers were being misled and charging excessive fees.
The Competition and Markets Authority said the developers may have violated consumer protection laws and have taken enforcement actions against them.
“It is unacceptable for home developers to mislead or take advantage of home buyers,” said Andrea Coscelli, executive director of the CMA. “Everyone involved in the sale of rental homes should take note: if our investigation shows that there have been improper sales or unfair contract terms, these will not be tolerated.”
The CMA’s extensive investigation found “troubling evidence” of unfair practices, including homeowners paying increasing land rents, which in some cases were planned to double every 10 years, and people told that the Properties on a farm would only be sold as rental homes when they were later sold as freehold to other buyers.
Other issues include telling tenants that converting to freehold would be cheap, only to be later told it would cost thousands of pounds without notice. There was also evidence of unfair sales practices, such as unnecessarily short times to complete purchases to pressure people into doing business that they might not have done with more time.
The CMA said that at this stage it should not be assumed that developers have been involved in “any or all of the practices described.”
He said he would also be investigating certain anonymous firms that bought freehold from the four developers and have continued to use the same unfair terms of the lease.
The regulator has written to the developers stating their concerns and requesting information. Depending on how the CMA case plays out, the outcomes include obtaining legal commitments from developers to change the way they do business or, if necessary, taking the companies to court.
Barratt Developments responded by saying it was “committed to putting its customers first and will continue to cooperate with the CMA as it completes its investigation.”
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The CMA said it was also sending letters to other anonymous developers encouraging them to review their practices to make sure they were treating consumers fairly and complying with the law.
“The CMA will continue to work with the government on its reform plans for the rental market,” the regulator said, “including support for the measure to prohibit the sale of new rental homes and reduce land rents to zero for new leases “.
Shares in Barratt fell 3% in early trading, making them the biggest drop in the FTSE 100 index, and Persimmon fell just over 2%.
