Taylor Wimpey changes lease terms following CMA action

Taylor Wimpey (TW) is to remove terms from leases that effectively double ground rents every decade following an investigation brought about by the Competition and Markets Authority (CMA) last year.

The housebuilder said it had agreed voluntary measures with the CMA which means that customers who entered leases that doubled ground rents every 10 years, or those who had converted those leases to a structure linked to retail price inflation, would revert to leases paying the fixed ground rent due at the time the homes were sold.

“Taylor Wimpey has always sought to do the right thing by its customers, shareholders and other stakeholders, and we are pleased that today’s voluntary undertakings will draw this issue to a full close,” said the company’s chief executive, Pete Redfern.

The CMA began enforcement action against four housebuilders in September last year. Its investigation into Taylor Wimpey and Countryside Properties (CSP) looked at the use of possibly unfair contract terms while its probe into Barratt Developments (BDEV) and Persimmon (PSN) examined the potential mis-selling of leasehold homes.

The CMA has reached settlements with three companies, but its investigation into Barratt Developments is still ongoing.

CMA chief executive Andrea Coscelli said the lease terms doubling ground rents had led to people being trapped in their homes because they struggled to sell them.

“I hope the news they will no longer be bound into these terms will bring them some cheer as we head into Christmas,” he said.

Taylor Wimpey’s shares traded 2 per cent higher, bringing its year-to-date gains above 9 per cent. However, its shares have underperformed competitors in what has been a robust market for housebuilders over the past 12 months.

Earlier this month, Redfern said he would step down as chief executive after 14 years at the helm. Activist investor Elliott Advisors called for efforts to replace him to focus on external candidates to “remedy its long-term underperformance and regain credibility with investors”.

Elliott has argued that “substantial upside potential” at Taylor Wimpey is readily achievable. Although materials costs and labour rates are unlikely to ease in the short term, it now faces heightened pressure to perform in what remains a robust market. We upgrade to buy.

Last IC View: Hold, 171p, 4 Aug 2021