Recent developments concerning ground rents – Competition and Markets Authority (“CMA”) action

The CMA has written to Countryside and Taylor Wimpey outlining its specific concerns that their use of lease terms that double the ground rent every 10 or 15 years breaks consumer protection law.

To address the concerns, the CMA is requiring the removal of ground rent terms which it thinks are unfair from all existing Countryside and Taylor Wimpey leases to make sure they are no longer in breach of the law.

The developers must also agree not to use the terms again in any future leases. If the developers do not address the CMA’s concerns, it has threatened to take further action, including through the courts, if necessary.

The CMA’s own official press release can be found here.

The possibility of reserving a ground rent that either (a) increases by reference to RPI or (b) doubles every 25 years does (currently) still remain.

But of course, no ground rent at all is allowed if the developer wants to qualify for Homes England’s 2021/23 Help to Buy equity loan funding.

Landlords and developers should review their existing lease terms and the proposal rental levels on any new schemes to ensure that they are not also potentially in breach of consumer protection law. Similarly, on stock swaps or acquisitions of existing stock, care must be taken at the acquisition stage to ensure that they do not inadvertently buy assets where such rental income is a ‘live’ risk of challenge or to price accordingly.

We would also recommend that RPs considered the status of their lease arrangements particularly those acquired under section 106 regimes to ascertain their position.

For more information, please contact Jonathan Corris, Dan Moan or Dominic Bauers in our Real Estate & Projects team.

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