The UK’s leasehold system has left a number of householders in unsellable and un-mortgageable homes and changes are needed, a committee of MPs says.
Often leaseholders in new-build properties are treated as a source of profit, the Housing, Communities and Local Government Committee (HCLG) says.
It says the Competition and Markets Authority (CMA) should investigate mis-selling claims.
The CMA should also make suggestions regarding compensation, they say.
Leasehold house owners are often charged expensive ground rent as well as fees if they want to make changes to their homes. A leasehold house can also be difficult to sell.
Developers say that in all transactions, builders aim to provide prospective purchasers, their solicitors and their mortgage lenders with all relevant information.
But the HCLG committee said stories from leaseholders showed failings in the process.
Elements of the current system, which the committee highlighted as needing attention, include claims of onerous ground rents, high and unclear service charges and one-off bills, unfair permission charges, imbalanced dispute mechanisms, inadequate advisory services, and unreasonable costs to extend leases.
It wants to see a standardised key features document provided by a developer or estate agent at the start of the sales process.
‘Landlord and tenant’
The committee said: “It is clear that many of the leaseholders we heard from were not aware of the differences between freehold and leasehold at the point of purchase, in particular the additional costs and obligations that come with a leasehold property.”
Someone who owns a property outright, including the land it is built on, is a freeholder.
With a leasehold, the person owns a lease which gives them the right to use the property. But they still have to get their landlord’s permission for any work or changes to their homes.
When a leasehold flat or house is first sold, a lease is granted for a fixed period of time, typically between 99 and 125 years, but sometimes up to 999 years – although people may extend their lease or buy the freehold.
The HCLG report said people with leasehold properties are in a “landlord and tenant” relationship with their freeholder.
It said ground rents have in some cases increased to a level which leaves properties unsellable and un-mortgageable.
Government figures suggest there were 4.2 million leasehold properties in England in 2015-16.