British homebuilders Taylor Wimpey and Countryside Properties must remove contract terms that lock leaseholders into rents that double every 10 or 15 years, the UK’s Competition and Markets Authority ruled on Friday.
“These ground rent terms can make it impossible for people to sell or get a mortgage on their homes, meaning they find themselves trapped. This is unacceptable,” CMA Chief Executive Andrea Coscelli said.
The two homebuilders can respond to the watchdog’s concerns and avoid court action by signing formal commitments known as “undertakings” to remove the ground rent terms from their leasehold contracts.
Shares in Taylor Wimpey and Countryside fell as much as 2% and 1.8%, respectively, lagging a FTSE 100 market down as much as 1.3%.
“Both companies have made provisions to redress this problem,” said Christopher Millington, equity analyst at Numis Securities.
“It is impossible to rule out any more financial impact arising from the same issue but I don’t think that would be particularly material.”
Taylor Wimpey, the UK’s third-largest homebuilder, said it intended to move to the next stage of formal consultation and would continue to cooperate with the regulator.
Countryside said it had sold no properties with doubling ground rent clauses since 2017 and introduced the ground rent assistance scheme in 2020 to assist leaseholders whose ground rents doubled more frequently than every 20 years.
Countryside said it would continue to engage constructively with the CMA.
The CMA has said it would take further action including judicial proceedings if Taylor Wimpey and Countryside did not address its concerns.
It CMA launched last September launched its investigation into builders Barratt Developments, Persimmon Homes, Taylor Wimpey and Countryside in relation to possible mis-selling of leasehold homes and high ground rents.
Its probe into Barratt, Persimmon is ongoing.