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CMA crack down on mis-selling: what to consider


Enforcement action is pending against developers who flout consumer protection laws when selling homes.

On 28 February 2020, the Competition and Markets Authority (CMA) announced that it intends to crack down on developers who mislead and unfairly treat homebuyers. It is therefore essential that, when selling homes, developers and home sellers understand what rights consumers enjoy and that all sales information and materials meet this requirement.

What’s the risk?

All homebuyers are protected by consumer protection regulations when purchasing a home. This covers new homes and re-sales. The seller (whether the developer or subsequent owner) must comply with these regulations or risk facing enforcement action.

In current UK law, homebuyers cannot bring private civil claims against a seller for breach of consumer protection regulations. However, consumer enforcement bodies (such as the CMA) and criminal enforcement bodies (such as Trading Standards) can. The penalties are: an unlimited fine and/or up to two years’ imprisonment for a criminal offence and an order from a civil body to stop a particular practice.

The Consumer Code for Home Builders will also bind most sellers of newly built homes. The Code does allow individual homebuyers to make a direct complaint to an independent adjudicator. The adjudicator has the power to award damages of up to £15,000 and the homebuyer can still make a claim in the civil courts too.

Both also carry with them the reputational damage of a successful allegation, the risk of disciplinary action being taken by professional membership organisations, and the involvement of the Advertising Standards Agency.

Avoiding enforcement action altogether

Sellers must not use unfair tactics when selling a home. Tactics will be unfair if they would influence the average home buyer to say ‘yes’ at any point in the home buying process where they would otherwise have walked away.

• No misleading actions.

e.g. incorrect information about increases in ground rent; incorrect information about the cost of purchasing the freehold in future; incorrect descriptions of the home or its surroundings; misleading guidance as to service charge costs; incorrect information about the price or characteristics of the home.

Top Tip: The CMA has said it is particularly concerned about increasing ground rents, the difference and characteristics of freehold and leasehold, and reasonable service charge costs. The buyers solicitor will need to provide advice on these points but the seller must give enough accurate information to inform the buyer’s purchase.

• No misleading omissions.

e.g. leaving out material information which the average homebuyer would need to make an informed decision, such as failing say or give basic information about whether the home is freehold or leasehold (remembering that share of freehold is not the same as a 999 year lease!); failing to include known elements of service charge costs; omitting information about known structural problems with the home or building.

Top Tip: If you do not have certain information to hand, explain this and update homebuyers immediately when it does become available.

• No acting aggressively.

e.g. pressuring a buyer to act unreasonably quickly or skip elements of the conveyancing process; restricting choices of solicitor, mortgage advisor or valuer.

• No failing to act with professional diligence.

e.g. not acting in accordance with honest market practice or in good faith; adopting sharp practices (such as doing any of the above) just because other sellers do; not carrying out reasonable checks as to the accuracy of information you use in marketing.

• Committing any of the banned practices

e.g. every banned practice will mean enforcement action can be taken against the seller. These include: falsely advertising the sale price as within a range which is lower than any property on offer; falsely advertising that an offer price is for a limited time only when it is not; telling homebuyers that the statutory complaints procedure is a unique selling point, where it is simply the statutory requirement.

Help! We are in breach!

If you discover any unfair or banned practices, stop them immediately and correct the information already distributed to any homebuyers.

If a homebuyer contacts you with a compliant, deal with it promptly within your complaints procedure. Do not ignore a complaint and seek legal advice if you are unsure whether to uphold or dismiss the complaint.

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