Countryside Properties (CSP.L) will put an end to its ground rent increases that double every 10 to 15 years, as the UK government continues to take action against “unfair” costs for homeowners across England.
The government had said earlier this year that ground rents, often levied by freeholders on leaseholders, “can make it feel like [leaseholders] are paying rent on a property they own.”
Freeholders were previously able to increase ground rent with “little or not benefit” to leaseholders. Some were forced to pay significant sums and higher ground rent when extending their leases, often when the lease runs below 80 years.
“Countryside has formally committed to make changes for the benefit of leaseholders,” the Competition and Markets Authority (CMA) announced on Wednesday.
“Countryside will remove from leasehold contracts certain clauses which caused the ground rents payable by leaseholders to double in price every 10 or 15 years,” it said, adding that the ground rent for Countryside leaseholders will remain at the amount it was when the property was first sold and will not increase over time.
The effect of these increases is that homeowners often struggle to sell or mortgage their home and their property rights can be at risk, for example, if they fall behind on their rent.
Andrea Coscelli, chief executive of the CMA, said Countryside leaseholders could breathe a "sigh of relief," adding that "no one should feel like a prisoner in their home, trapped by terms that mean they can struggle to sell or mortgage their property."
But the homebuilder, whose stock was down 1.1% by Wednesday afternoon, said it had not sold any properties with doubling ground rent clauses since 2017 and was not the subject of mis-selling allegations in the CMA’s investigation.
CEO Iain McPherson said: “Countryside has engaged extensively and constructively with the CMA throughout the course of its review to reach this positive outcome for affected leaseholders.”
The company expects to make a further provision of £5m ($6.9m), in addition to the £10m provision previously announced for the Ground Rent Assistance Scheme.
As part of an investigation launched in 2019, the CMA said back in June that home insurer Aviva (AV.L) would remove from leasehold contracts certain clauses which were doubling the ground rents payable by leaseholders.
Housebuilding company Persimmon (PSN.L) started offering leasehold house owners the opportunity to buy their freehold at a discounted price after the CMA probed their sales practices.
The government's aim is to allow millions of leaseholders to be able to extend their lease by up to 990 years at zero ground rent, saving them thousands of pounds.
In September last year the CMA launched enforcement action against four housing developers.
The investigation into Barratt and Taylor Wimpey is continuing.
"Other developers, such as Taylor Wimpey, and freehold investors now have the opportunity to do the right thing by their leaseholders and remove these problematic clauses from their contracts," said Coscelli.
"If they refuse, we stand ready to step in and take further action — through the courts if necessary."