Background
This Ruling forms part of a wider piece of work on land and property investments. In two of the cases, the ads were identified for investigation following intelligence gathering by our Active Ad Monitoring system, which uses AI to proactively search for online ads that might break the rules.
Summary of council decision:
Four issues were investigated, all of which were Upheld.
Ad description
A magazine ad for Luxury Lodges, a holiday property investment company, seen in the Saturday Times magazine on 17 July 2024, was headlined “Luxury residences available across 5-star resorts in the UK Invest from £295,000”. Further text stated, “Up to £83,454 over two years guaranteed return based on historical success”. Smaller text stated, “Own a luxury coastal lodge […] Benefit from our sublet plan with guaranteed returns […]”. A QR code and text that stated, “SCAN FOR MORE INFO” were featured at the bottom of the ad.
Issue
1. The complainant challenged whether the claim “Up to £83,454 over two years guaranteed return” was misleading, because the ad stated the return was based on historical success, which was not therefore guaranteed.The ASA challenged whether the ad was misleading and breached the Code because it:
2. failed to illustrate the risks of the investment;
3. did not make clear that the advertised return related to rental income under the sublet guarantee, rather than the value of the investment; and
4. did not make clear that additional fees and charges applied.
Response
1. Luxury Lodge Estates Company Ltd (Luxury Lodges) said the advertised return, which was based on rental income from their sublet programme, was guaranteed and legally binding. They supplied a copy of the guarantee agreement between themselves and the lodge owner. Luxury Lodges guaranteed income, based on a minimum occupancy rate of 80% for each lodge. The exact figure was determined by the market demand for, and occupancy history of, the specific lodge purchased. They explained that if the income did not reach that level by the end of a 12-month period, the company would make up the shortfall. The guaranteed figures were based on the company’s historical success but were not dependant on it being repeated. Neither the historical return nor the actual return had a bearing on the guaranteed return. If the actual return was higher than the guaranteed one, owners would receive the higher amount.
2. Luxury Lodges believed that because the advertised return was guaranteed, a risk warning was not required.
3. Luxury Lodges said the ad made no reference to any increase in the capital value of a lodge, nor to its eventual sale. Rather, it referred to a fixed sublet return over an ongoing two-year period. They believed that would not be misconstrued as referring to the potential value of the lodge if, or when, it was sold.
4. Luxury Lodges said the advertised price accurately reflected the purchase price of one of their lodges. Service charges applied only if the owner chose to holiday at the resort; the majority of owners, who rented out their lodge for the whole year, did not have to pay them. They added that when charges did apply, they were deducted before the guaranteed return was paid out.
Assessment
1. and 3. Upheld
The CAP Code required offers of financial products to be set out in a way that allowed them to be understood easily by the audience being addressed and must not take advantage of consumers’ inexperience or credulity. If the value of an investment was guaranteed, the marketing communication must explain the guarantee.
The ad was headlined “Luxury residences available across 5-star resorts in the UK Invest from £295,000”. The ASA considered that those claims, which were prominent in the ad, promoted the purchase of the property as an investment. The ad went on to state, in a heading lower down the page, “Up to £83,454 over two years guaranteed return based on historical success”. Further, smaller, text lower down stated, “Benefit from our sublet plan with guaranteed returns”, referring to the optional sublet programme which provided a fixed minimum income over a maximum two-year period for those owners who chose to sign up to it. Each of those references, in particular the smallest text relating to the sublet plan was not, however, linked to the quoted return figure, which appeared separately higher up the page. As such, in the context of an ad that promoted property as an investment, and referred to “historical success”, we considered it was ambiguous whether the return figure was instead intended to refer to the value of the property, and as an indication of the returns that could be expected on the value of the property in future. In any case, we considered it was not sufficiently clear that the quoted return linked to the guarantee related to rental income from the optional sublet scheme.
We noted that the phrase “based on historical success” was not intended to be seen as a guide to future returns and that it did not have any bearing on the income owners would receive over the guarantee period. Luxury Lodges had derived the guaranteed return figure for each lodge, where owners could receive up to a maximum of £83,354 over a two-year period, from their prior knowledge of factors such as market demand and occupancy levels, and that they intended “historical success” to be understood by consumers in that context. We understood that Luxury Lodges guaranteed a minimum occupancy level of 80% and would make up any shortfall in income if occupancy did not reach that level after 12 months. However, none of those details of how the guarantee worked were made clear in the ad. In addition, the guaranteed sublet programme was valid for a minimum of 12 months and a maximum of 24 months, whereas the ad did not make clear that the guarantee did not necessarily apply across the full two years. We considered that the ad did not make clear how the guarantee worked and did not explain its relevance to the stated return.
Because the ad did not make clear the nature of the guarantee, and did not make sufficiently clear that the advertised return was linked to the sublet programme or how it worked, we concluded that it was misleading and breached the Code.
On those points, the ad breached CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising), 3.9 (Qualification), 14.1 and 14.4 (Financial products).
2. Upheld
The CAP Code stated that marketing communications should make clear that the value of investments was variable and, unless guaranteed, could go down as well as up. The Code also required that marketing communications make clear that past performance or experience did not necessarily give a guide for the future; if they were used in marketing communications, examples of past performance or experience should not be unrepresentative.
The ad stated, “Invest from £295,000” and “Up to £83,454 over two years guaranteed return based on historical success”. We acknowledged that the quoted figure related to rental income and that it was guaranteed for a maximum two-year period. For the reasons stated in points 1 and 3 above, we considered that the ad did not make the nature of the guarantee clear. In addition, the ad did not make clear that the value of the property investment itself was variable and could go down as well as up. We considered that the reference to historical success would be seen as giving a guide to future returns. It was not, however, qualified with a statement that past performance did not necessarily give a guide for the future. Because it did not make clear the risks of the investment, we concluded that the ad was misleading and breached the Code.
On that point, the ad breached CAP Code (Edition 12) rules 3.1 (Misleading advertising), 3.9 (Qualification) and 14.4 and 14.5 (Financial products).
4. Upheld
The CAP Code required offers of financial products to be set out in a way that allowed them to be understood easily by the audience being addressed and must not take advantage of consumers’ inexperience or credulity. The Code also stated that quoted prices must include non-optional taxes, duties, fees and charges that applied to all or most buyers. Additionally, the Code stated that if a tax, duty, fee or charge could not be calculated in advance, for example, because it depended on the consumer's circumstances, the marketing communication must make clear that it was excluded from the advertised price and state how it was calculated.The ad stated, “Invest from £295,000” and did not refer to any additional costs. We considered that consumers would therefore expect the “from” price to include all additional fees and charges. We acknowledged Luxury Lodges' point that the annual service charge applied only to those buyers who chose to holiday at their lodge. However, the FAQ section of the website listed the service charge, utilities fee and insurance as additional costs incurred after purchase. Furthermore, the individual property listings each detailed an annual service charge and did not specify that it was applicable only to those owners who opted to stay in their lodge. Because the quoted price did not include non-optional, ongoing fees and charges that applied to all or most buyers, and because the ad did not make clear that other fees, that could not be calculated in advance, might apply, and how they would be calculated, we concluded that the ad was misleading and breached the Code.
On that point, the ad breached CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising), 3.18 and 3.19 (Prices) and 14.1 (Financial products)
Action
The ad must not appear again in the form complained of. We told Luxury Lodge Estates Company Ltd t/a Luxury Lodges to ensure that future ads made sufficiently clear that the value of investments was variable and could go down as well as up and that past performance did not necessarily give a guide for the future. We also told them to make the nature of the guarantee clear. Finally, we told them to ensure that future ads included non-optional fees and charges that applied to all or most buyers and to make clear that other fees might also apply.
