Thousands of leaseholders have been mis-sold homes and unfairly charged by developers

An investigation by the competition watchdog has found that leaseholders are paying escalating ground rents and excessive fees

A government investigation has uncovered “troubling evidence” of potential mis-selling and unfair contract terms in the leasehold housing sector.

The Competition and Markets Authority (CMA) says it is concerned that leasehold homeowners have been unfairly treated by housing developers.

It found that some homeowners were often misled by housing developers that the property was a leasehold and what this meant.

By the time people find out the realities of owning a leasehold, including ground rent charges, they were often unable to pull out of the purchase, or faced significant difficulties trying to do so.

The CMA says homeowners are having to pay escalating ground rents, which in some cases can double every 10 years. This increase is often built into contracts, meaning people can often struggle to sell their homes and find themselves trapped.

The probe found that some homeowners are being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements.

People have also been misled about the cost of converting their leasehold to freehold ownership.

Some people were told the freehold would cost only a small sum, but later on this price had risen by thousands of pounds with little to no warning.

Andrea Coscelli, the CMA’s chief executive, says: “We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.

“Buying a home is one of the most important and expensive investments you can make, and once you’re living there you want to feel secure and happy. But for thousands of leasehold homeowners, this is not the case.

“We’ll be looking carefully at the problems we’ve found, which include escalating ground rents and misleading information, and will be taking our own enforcement action directly in the sector shortly.”

What is the difference between leasehold and freehold?

The freeholder of a property owns the land outright, including the land it is built on. Most houses are freehold, but some are leasehold.

The difference with a leasehold property is that you own the property and its land for a fixed period of time depending on the agreement you have with the landlord – effectively making you a tenant.

Leaseholds usually last between 99 and 125 years, sometimes going up to 999 years.

There are currently four million leasehold properties in the UK, of which 1.4 million are houses.

Taking action

Homeowners can challenge leasehold charges, but the process is often difficult and costly, meaning few people decide to go through with it.

The CMA says it is now completing the necessary legal work to launch direct enforcement action against companies it believes have broken consumer protection law.

This could result in firms signing legal commitments to change how they do business. If they fail to make the required changes, the CMA could take action through the courts to make them comply with the law.

Mark Hayward, chief executive of NAEA Propertymark, says: “We have long called for action to be taken to help leaseholders who have been misled and treated unfairly.

“For too long, house builders and developers have not been transparent enough about what it actually means to buy a leasehold, which in turn has meant many owners have been faced with escalating ground rents and unreasonable fees, leading them into financial difficulty.

“Our research shows three in five leaseholders feel they were mis-sold and therefore it’s vital enforcement action takes place as soon as possible to give some hope to those who are currently trapped with no easy route out.”