CMA orders developers to remove 'unfair' ground rent contract terms

The Competition and Markets Authority (CMA) has asked Countryside and Taylor Wimpey to remove from existing contracts “unfair” terms, which double the cost of ground rent every 10 or 15 years. It has also requested that these terms be ommitted from future contracts.

The CMA believes the terms break consumer protection law, as they may lead to individuals struggling to sell or mortgage their homes and finding themselves “trapped”. Andrea Coscelli, CMA Chief Executive, described this as “unacceptable.”

The CMA is concerned with the application of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) and Part 2 of the Consumer Rights Act 2015 (CRA), in the context of ground rents. This legislation is intended to protect consumers against unfair contract terms and requires terms to be fair and transparent. 

Coscelli commented: “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.”

As an enforcer under the Enterprise Act 2002, the CMA cannot levy fines, but can enforce legislation through the courts, as well as obtain additional measures to improve consumer choice, encourage better compliance with the law, or obtain redress for consumers. However, ultimately, only a court can decide whether a contract term is unfair.

Housing Secretary, Robert Jenrick, said the government asked the CMA to conduct the investigation and that he “strongly” welcomed efforts “to bring justice to homeowners affected by unfair practices, such as crippling ground rents, which have no place in our housing market.”

He said: “This behaviour must end, and I look forward to appropriate redress being forthcoming for leaseholders.”

Jenrick added: “The Government is pursuing the most significant reforms to leasehold in forty years, including…restricting ground rents in new leases to zero and ending the use of leasehold in new houses altogether.”

The CMA has also indicated that it may also write to Barratt Developments or Persimmon Homes in relation to the same issue, but it has not yet reached a view on whether these companies have been involved in such practices.

There may be ramifications for commercial investors, too. The CMA has announced it will also investigate certain firms, such as investment companies, that bought freeholds from these developers and have continued to use the same leasehold contract terms. 

Countryside and Taylor Wimpey have the opportunity to respond to the CMA’s concerns. If they choose to sign undertakings agreeing to remove ground rent terms from their contracts, they may avoid court action.