UK Housing Companies To Face CMA Action Over Leasehold Malpractices

Summary

  • Taylor Wimpey, Persimmon, Countryside, and Barret development are to face probe from the CMA (Competition and Market Authority) regarding mis-selling of leasehold housing properties in the country
  • The practise being investigated, is the selling of houses built on leasehold properties to homeowners who would continue to pay rent on the land which would double every ten years
  • According to government data, nearly 4.3 million such homes exist in the United Kingdom, and the housebuilders may have used " unfair sales tactics" to mislead people over the cost of converting these properties into freeholds

The British regulator CMA (Competition and Market Authority) has initiated action against four of the country’s major house construction companies over a potential mis-selling scandal. The UK housing companies being investigated (Taylor Wimpey, Persimmon, Countryside and Barret development) shall be scrutinised for charging un-necessary leasehold and onerous ground rent charges.

In fact, this practice is being criticized for a long period of time. The British government had also indicated in the past that it would bring about a legislation to end this practice. Even so, it has been taking a long time to take any further steps.

The CMA has now indicated that in case it comes across any concrete evidence during the investigation for an unfair practice towards the consumers, it will not hesitate to drag these companies to the British consumer courts.

It is to be noted here that several of the impacted property owners have been holding a campaign against these unfair practices and allege that they have become leasehold prisoners by buying these properties. These consumers claim that the housebuilders have broken consumer protection laws of the nation.

The housebuilders in question have issued statements saying that they shall fully cooperate with the government for any investigations and remain committed to undertake fair practices for all their customers.

The details of the investigation

The allegations that these builders are facing is regarding the land ownership transfer of the properties that they are selling.

Many of the houses they sell are not on a freehold land, and the new house owners are often charged rent for the land which doubles every ten years, while the cost of converting these leaseholds to freeholds are often exorbitant.

Nevertheless, according to the consumer claims, when these houses were sold, most of these people were either misinformed or were not informed, which could have influenced their buying decisions.

Several lawmakers across party lines have expressed their disdain over this business practice and have expressed that this practice should be quickly ended.

However, despite a promise made by the government to bring about legislation for ending this practice way back in 2017, no concrete action has been initiated yet.

The CMA's action is the first such action by a government body in this regard and may open up the way for the necessary government policy changes on the future.

The performance of the shares of all four of these companies after the news of CMA action

Taylor Wimpey plc- (LON: TW) Since the news broke of the CMA action, the shares of Taylor Wimpey plc have taken a dip at the London Stock Exchange. While on 3 September 2020 the shares of the company were trading at GBX122.40 the fell sharply on the next day to reach a low of GBX 114.85 by the end of trade on 4 September 2020, losing 4.96 per cent over a period of one day. Since 2017 the company has already set aside a sum of £130 million to settle any disputes that may arise because of a government ban. After that, the company share price has recovered to reach a level of GBX 118.00, up by 2.74 per cent on 7 September 2020 at 10.16 AM from its previous day’s close.

Taylor Wimpey plc is one of the largest house building companies in the United Kingdom and part of the FTSE 100 index.

Barratt Developments Plc- (LON: BDEV) Barrett developments Plc also faced a similar investor action on the London Stock exchange after the news broke on the CMA action. The shares of the company which closed at GBX 542.56 on 3 September 2020, dropped sharply next day on 4 September 2020 and closed at GBX 501.80 losing 6.97 per cent over a period of one day. After that, the company share price has recovered to reach a level of GBX 519.20, higher by 3.74 per cent on 7 September 2020 at 10.22 AM from its previous day’s close.

Barratt Developments Plc is also one of the largest house building companies in the United Kingdom whose shares are part of the FTSE 100 index.

Persimmon Plc- (LON: PSN) the shares of Persimmon Plc also suffered a major setback at the London Stock Exchange because of the competition regulators actions. The shares of the company were trading at GBX 2636.00 at the close of trade on 3 September 2020 and from there slipped to GBX 2503.00 on the close of trade on 4 September 2020, losing 5.23 per cent of its value over the one-day period. Since then, the company share price has recovered to reach a level of GBX 2,558.00, higher by 2.20 per cent on 7 September 2020 at 10.24 AM from its previous day’s close.

Persimmon Plc is also one of the most prominent housebuilders in the United Kingdom whose shares are constituents of the FTSE 100 index.

Countryside Properties plc- (LON: CSP) The CMA’s action also had its adverse effect on the trading performance of the shares of Countryside properties plc on the London Stock Exchange. At the close of trade on 3 September 2020, the shares of the company were trading at GBX 325.00, after the news broke of the CMA action on 4 September 2020 the share performance took a dive and closed at GBX 311.00, losing nearing 4.48 per cent of its value over the one-day period. Later, the company share price recovered to reach a level of GBX 319.40, rising by 2.70 per cent on 7 September 2020 at 10.25 AM from its previous day’s close.

Countryside Properties plc is a prominent mid-sized house building company in the United Kingdom whose shares form part of the FTSE 250 index.

Conclusion

It is argued by experts that the leasehold rent and conversion practice in the United Kingdom is unfair to the consumers. The CMA's action to investigate the same has the potential to open up a pandora's box. If such an eventuality does to take place, it will lead to thousands of house owners coming up with claims that could run up to millions of pounds. The industry which is just recovering from the coronavirus pandemic induces slowdown could get into trouble in such a case. Immediate legislative action by the UK government would go a long way in protecting the interests of the homeowners and housebuilders apart from bring clarity for future.

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