U.K. Watchdog to Probe Housebuilders for Misleading Buyers

(Bloomberg) -- The U.K. competition watchdog has named four of the country’s largest housebuilders in its investigations into unfair contract terms and the potential mis-selling of homes.

The Competition and Markets Authority said it was opening enforcement cases against Barratt Developments Plc, Countryside Properties Plc, Persimmon Plc and Taylor Wimpey Plc, according to a statement on Friday. The regulator warned in February that it would take action over the long-running allegations, without identifying any companies.

“The move comes after the CMA uncovered troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling,” the statement said. “It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.”

Possible outcomes from the action include legal commitments from the companies to change the way they do business, or taking the firms to court if necessary, the CMA said.

Ground Rents

In apartments that occupied the same building, buyers were typically required to pay a small annual sum known as ground rent to the owner of the land on which the property stood. But several of the U.K.’s largest developers adopted the practice for even single family homes, making additional profits by selling off portfolios of land ownerships to investment funds that prized the secure long-term income.

In some cases homes were sold with rents that doubled every decade, meaning home buyers were unable to sell on their properties once the issue was identified.

Several home builders have previously acknowledged the allegations and pledged to clamp down on the sale of leasehold homes. Taylor Wimpey set aside 130 million pounds ($172 million) to renegotiate the terms of ground rents for home buyers whose freeholds had been sold on to third parties with onerous terms.

Barratt Developments “is committed to putting its customers first and will continue to cooperate with the CMA whilst it completes its investigation,” the company said in a statement following the CMA announcement. Countryside is “committed to resolving this issue to the satisfaction of our customers and will continue to cooperate fully” with the investigation, a spokesperson said in an emailed statement.

Taylor Wimpey’s board “takes this very seriously” and will continue to fully cooperate with the regulator, the firm said in a statement. Persimmon said it looked forward “to engaging fully with the CMA on this issue.”

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