Leasehold and Commonhold Reform
I beg to move,
That this House has considered leasehold and commonhold reform and leasehold abuses.
May I first say that we are grateful for your chairing the debate, Sir David? We hope that the next time we debate this issue, it will be on the Floor of the House. The all-party parliamentary group on leasehold and commonhold reform, which now has more than 130 members from both Houses, is probably one of the largest and most active all-party parliamentary groups that there is. One reason for that is that leasehold abuse is a desperate problem, which I am grateful to the Minister for recognising through his presence in the Chamber.
We have been able to be so active because of the work of two people in particular, Martin Boyd and Sebastian O’Kelly, from the Leasehold Knowledge Partnership—LKP. They also help run the good cause campaign, Better Retirement Housing, which was once known as Carlex—the Campaign Against Retirement Leasehold Exploitation. The debate will not focus primarily on the elderly, although it could, as their exploitation is a big problem. It will also not focus primarily on park homes, another form of tenure through which people can be exploited by scoundrels, crooks, rogues and those who exploit the law by making those who are badly off even worse off; through some legal stratagems, they can manage to take away the last assets that some people have.
Leasehold is a form of residential tenure that has been abolished in most places around the world and should be ended in this country. When I say this country, I basically mean England, or England and Wales; the situations in Northern Ireland and Scotland are different, and it needs to change here. That was recognised by Martin Boyd and Sebastian O’Kelly when they started asking Parliament about the plans to bring in commonhold ownership, which should have taken away half the opportunities for exploitation. It should have eliminated the problem; it would not be a question of a small fix —it would be solved.
As it happens, since Parliament passed the Commonhold and Leasehold Reform Act 2002, things have gone wrong. We have not had the growth of commonhold, which in Australia might be called strata title. The reason for that is that the responsibility for it was left with the Ministry of Justice, and of all its concerns, the condition of people living in leasehold homes was not one.
In the years since Parliament last gave serious attention to this issue, we have had a succession of Governments from both parties, and a coalition Government, and we have had Housing Ministers who I think have not been properly advised, because their officials did not actually understand the scale of the problem. At one stage, people thought there were about 2.5 million residential leasehold premises in the country. It is quite clear from the work Martin Boyd and Sebastian O’Kelly have done —with the help of Sir Nigel Shadbolt, Sir Tim Berners-Lee and the Open Data Institute, to whom I pay credit—in getting information that is publicly available and putting it together that the actual number of residential leasehold premises is between 5 and 6 million.
I do not want to get myself too involved in some figures in the Department’s announcement at one minute past midnight today. I do not think they have the number of new leasehold houses right, but that is immaterial to the debate. What matters is that what was an anomaly in the north-west—selling houses as leaseholds when they could be sold as freeholds—began to spread. To those who say that the leasehold house was sold at a lower price than the freehold house, LKP’s work shows that that is not correct. It was just a way of exploiting leaseholders, who thought that it was a normal way of taking on a home.
Of course, when the ground rent on a leasehold was a peppercorn, there was no problem at all. When it is £10 a year and doubles every 20 years, from £10, to £20, and to £40, people cannot see the problem. However, when it starts at more than £200 and doubles every 10 years, that is a 7% increase per year.
I praise the hon. Gentleman for all the work he has done on this; I think we have moved a long way from where we started. He is absolutely right that this is a scam, and it has spread. It is not only about the ground rent issue but all the other onerous requirements. If people want to change the flooring, they have to apply and are charged a ridiculous fee. It has also spread to the management costs of looking after the ground around the premises. It is a scam, and it needs to be treated as such.
I think people will accept that. I ought to say that we are not trying to solve all the problems with all forms of housing in one short debate. I will try to limit my remarks and leave space for others to bring up issues, although we do not expect the Minister to answer every point today. The Government’s announcement was welcomed by most people in the field as a step forward that is less than is needed but is dramatically more than anyone had expected.
I join my hon. Friend the Member for Alyn and Deeside (Mark Tami) in congratulating the hon. Gentleman on the work he has done on this and on securing the debate. While the legislation the Government have announced to ban the practice in the future is, of course, very welcome, many people have already been caught by the scam, including constituents of mine who purchased leasehold homes from Miller Homes in my constituency, in Hunslet. They have found that the company that the freehold has been sold on to is now asking for unreasonable charges in order to buy out the freehold, which they cannot afford. Does he agree that, as well as the original housebuilders being asked to set up compensation schemes, as the Government propose, they should be required to do so? Otherwise, people can find themselves in a home that they cannot actually sell.
That matches the problems of some park home owners. If I had the time, I would get into the activities of Barry Weir, the Smart family and various others who have ruined people’s lives.
On solving the doubling of ground rents for residential properties, whether houses or flats, it is quite clear that there are three approaches that will work. The first is trying to deal with the problem with the first buyers. I congratulate Taylor Wimpey and Countryside on trying that, and pay tribute to them and their shareholders for making that decision. The Minister will write to the other companies to ask what they will be doing. I am grateful for that. However, that does not solve the problems for the second-hand buyers.
The second is changing the unfair terms, which are in either leasehold or some freehold contracts, where people cannot make changes without getting permission, which can be expensive. That is added to by the problem that, when a leaseholder or interested resident tries to challenge something, the property tribunals have not always worked properly.
The cost of a leasehold valuation tribunal was supposed to be limited to £500. However, as Mr Dennis Jackson discovered, he was about to lose £600,000 of equity after he and another elderly leaseholder challenged some costs. They were awarded three quarters of their claim, but then the costs went out of control. His home was going to have to be forfeited, and the surplus after the costs were paid would not go to him or his mortgage company—it would have gone into the hands of the freeholder. That cannot be right, and it has to change. The law on forfeiture is another thing I hope the Minister will be able to tell us about, either today or next year.
Will the Minister consider the particular problem of leasehold in shared ownership? There, when you want to extend, you do not even have recourse to the courts, as there is no reference to it in the Leasehold Reform, Housing and Urban Development Act 1993. It is very serious that, with co-owners, you can effectively be treated as a tenant, with few rights and little opportunity to sell on. Even if you think you own 50% of the property, you will pay the full charge—including all the maintenance costs and any valuation fee if you purchase any more. It is a dreadful position to be in, yet it has been seen as a way of encouraging those with very little to start on the housing ladder.
My hon. Friend makes a point that shows the truth of what I said at the beginning: the Government’s announcement today has gone further than people expected, but it does not cover everything. There needs to be a forum in which the Government can actually listen to the voices of those who represent the unfortunate ones who are caught in a trap and find ways of solving that.
By the way, that if someone is to talk about me and uses “you”, may I ask them please use it in the plural sense? The hon. Member for Poplar and Limehouse (Jim Fitzpatrick) and others have given help over the years as well. We have to make this a “we” thing that is cross party and effective.
May I congratulate everyone who has been involved in this campaign so far? I am acutely aware that every time the hon. Gentleman gives way, he has to get up and down from his chair with his dodgy leg, so I apologise for that. I want to draw attention to another group: long leaseholders of the National Trust. I have a number of constituents who are in that situation. Even though the period of the lease goes well into the future—2043, in one case—they almost certainly cannot sell their homes because they have no idea what the modern ground rent will be at that date. They are trapped completely. It is really important for the National Trust to behave responsibly.
That is a point that the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) might raise if she speaks. My right hon. Friend the Member for East Devon (Sir Hugo Swire) sadly cannot be here because he has a Secretary of State visiting his constituency, but he asked that the question of National Trust leaseholders be raised. I also want to pass on the strong encouragement from my hon. Friend the Member for Eddisbury (Antoinette Sandbach), who has a constituency engagement and cannot be here but wishes to be associated with all that we are saying.
How is it that past Ministers failed to get a grip or an understanding? One reason—I make this direct accusation —is that the present and past chairmen of LEASE, the Leasehold Advisory Service, were not up to the job. They were supposed to be the ones providing impartial advice to leaseholders and others. In practice—perhaps, they can argue, because they not properly or fully funded—they had to raise money commercially. Their idea of raising money commercially was to run a conference where lawyers, accountants, surveyors and freeholders came together to swap ideas on how to put one over on the leaseholders. Only when the Leasehold Knowledge Partnership charity started pushing did some of the leaseholders get invited to a little bunfight afterwards. The trustees of LKP were not invited to the conferences, but some of them decided to go anyway. That is a crazy way of dealing with things. When I raised that with Deep Sagar and similar issues with Roger Southam— the present LEASE chairman, who I doubt will be chairman for very long—they did not respond in a way that I regard as proper.
My biggest condemnation is this. Who knew most about the problems of leaseholders? The advisory service that leaseholders would ring up. Who should pass on to Ministers that there are problems? The Leasehold Advisory Service, LEASE. Did it? No. Because it is pre-Christmas, I will not use the sort of language I would be tempted to use if I were in a coffee shop. We then had the problem that staffing on this side of the housing department in the Department for Communities and Local Government was not strong enough. I am glad that there are now more people there who have more of a commitment to more engagement.
The Minister needs to have a quiet word. When embargoed notices of what was going to come out at midnight were sent out, every single journalist was obviously going to ring up Martin Boyd, Sebastian O’Kelly and one or two MPs who were involved, who had not had a copy of the embargoed press notice. It would be far more sensible to look on the major charity in this field as partners, not as people who need to be approached third hand for comments. As it happens, their comments were good and supportive, and I am glad they did that. However, I think the hon. Member for Poplar and Limehouse will agree that LKP should be regarded as trusted friends.
LKP is the secretariat for the all-party group. On behalf of all of us, I would like to pay tribute to it for all that it does, together with Katherine O’Riordan, who does so much work in preparing our meetings and roundtables, which has helped to raise the general level of understanding. While talking of praise, I thank the lawyers who have given advice to both us and Government on how to make changes that will work.
I had a whole series of other issues in my prepared notes. If the debate dies out towards the end, perhaps I will speak again after the Minister, but if my colleagues on both sides of the Chamber fill up most of the time, I do not mind. We can deal with the issues that I have not raised in detail either by correspondence or if, as I asked at business questions today, the Government hold a debate in their own time on their proposals. That will get a widespread welcome, and we can then work out the timetable, the modalities of making the change and how we can get the Law Commission recommendations to come forward as fast as possible.
We can then re-gather here in 10 years’ time and say that, since Christmas 2017, substantial progress has been made for new leaseholders, who will not be exposed to all these horrors, and on the ways forward for existing owners of leases, who will be messed up unless we make a change on extending leases and the costs of getting permission to do all sorts of simple things. Sir David, I think that this debate will be remembered not just for your chairmanship, but also because it has brought us all together to make change for the better.
Sir David, it is a pleasure to serve under the chairmanship of a fellow West Ham United supporter; I know that you will show no favour. Your experience is very welcome here.
I am delighted to follow the hon. Member for Worthing West (Sir Peter Bottomley), and I pay tribute to him for his leadership on this issue over many years. I am proud to be his co-chair of the all-party parliamentary group on leasehold reform. I am pleased to see my right hon. Friend the Member for Wentworth and Dearne (John Healey), the shadow Secretary of State for Housing, in his place, demonstrating how seriously the Opposition take this issue. I am very pleased to see the Minister, who is highly regarded and who will take this issue forward. We are cheering from all sides of the House to give him a fair wind.
As co-chair of the all-party group, I wish to place on record my thanks to Katherine O’Riordan for her hard work for the group and for her professionalism, and to Martin Boyd and Sebastian O’Kelly of the Leasehold Knowledge Partnership, who act as our secretariat and have given us sterling support over the years, working with organisations such as the National Leasehold Campaign, which has been pushing on this issue for a long time.
I want to start by welcoming the Government’s efforts, including today’s announcement. Together with the housing White Paper, the consultation in September that led to today’s announcement, the call for evidence that the Government issued, the extra staff for the leasehold section of DCLG, more money for LEASE—despite our criticisms of the way it has operated previously—and today’s announcement all signal that the Government know there are problems. This will be the third time in recent decades that a Government will try to fix the abuses of leasehold tenure. The last two failed in 1993 and 2002. Hopefully this one will not.
However, today’s announcement must only be a start. Commonhold should be the real objective of our campaign. Although many people are clearly content with their leasehold properties, there are abuses for tens of thousands, if not hundreds of thousands, of leaseholders across England and Wales, and there are poor redress arrangements available.
I praise my hon. Friend for all the work he has done. I very much welcome what the Government have announced, but a great number of people who already have leaseholds are affected, and it will obviously be very difficult for them to sell those properties. I know it is not easy, but we really need to get redress for those people as quickly as possible.
My hon. Friend puts his finger on the key point. We will be looking to the Minister for reassurance on the 5 million leaseholders who will not be covered by future regulation and legislation and many of whom are disadvantaged and are looking to the Government to address those concerns. I will come back to that later in my contribution.
According to House of Commons Library figures, my constituency has the second highest number of leasehold properties in the country. In 2016, it had the highest proportion of leasehold sales, at 97%. Only a couple of years ago, DCLG figures calculated that there were 2.3 million leasehold properties in England and Wales. Under pressure from the LKP and others, the Department adjusted that figure to 4.1 million, which is quoted often, even by the Library, as being as a more accurate figure.
However, as the hon. Member for Worthing West mentioned, the LKP now estimates that there are 6.2 million homes provided with leasehold services. That means millions of homes and homeowners are vulnerable to inflated service charges, exorbitant insurance costs, a lack of tender transparency and poor standards of work—original or repairs—as well as refusal to recognise properly constituted resident or tenant associations, mismanagement of funds and other fundamental problems. I hope that the Minister will elaborate on how today’s announcement will help to address many of those concerns.
I want briefly to focus on the post-Grenfell fire safety costs being inflicted on many leaseholders. On Monday, I asked the Secretary of State for Communities and Local Government when he made his statement on Grenfell Tower and building safety whether he could tell us how many applications for the costs of cladding replacement and fire precautions, including fire marshals, have been registered with the first-tier tribunal by landlords and freeholders. In relation to meeting the costs of building safety, he said:
“I have made it clear that I expect private sector landlords to take the lead that has been shown by housing associations and local authorities.”—[Official Report, 18 December 2017; Vol. 633, c. 784.]
That is, that leaseholders will not be charged for the costs. David Orr, the chief executive of the National Housing Association, said in correspondence today:
“As freeholders of leasehold properties, our members”—
“have legal responsibilities as part of their leases and are therefore legally entitled to recoup the reasonable costs through service-charges”.
That is hardly a ringing endorsement of what the Secretary of State said.
Equally, information from the first-tier tribunal shows that 17 applications have been made to it. I would be grateful if the Minister confirmed whether those were to dispense with the full section 20 consultation process or to gain prior approval, under section 27A, of the amount the landlord proposes to spend on cladding and pass on to leaseholders. Ministers have been positive in asserting that costs for removal and replacement, and so on, should be borne by the owners, freeholders and agents, but the experience on the ground may be different.
In my constituency, for the New Festival Quarter development, HomeGround, Bellway, Pinnacle, Adriatic Land 6 and Family Mosaic have informed me—after many calls and emails—that they have secured confirmation that the works costs will be met, but the cost of fire marshals, originally set at £32,000 a week plus VAT, will be met by leaseholders. That figure, after much examination and pressure, is now down to just under £20,000 a week plus VAT, but will run from October to at least February 2018, and I suspect probably longer. My question to the Minister is this: does he think it is fair that residents should pick up the tab? It is obvious from previous statements that he does not, so what further steps can they take to protect themselves? To be fair, the housing association Family Mosaic is opposed to leaseholders footing the bill, but managing agents Pinnacle are not so inclined—certainly not so far.
Can the Minister tell us how many other blocks are affected across the country? Page 74 of Dame Judith Hackitt’s interim report, published this week, says:
“In a significant proportion of buildings visited, fire and rescue services had to issue notices”.
As I understand it, these notices are known as NODs—notices of deficiencies, not alterations, enforcement or prohibition notices. Can the Minister tell us—or perhaps write to us afterwards—how many NODs there have been, and how many developments have confirmed no costs to leaseholders?
Returning to the Government announcement today, the Minister will know that Lord Justice Bean, chair of the Law Commission, issued a statement last week, saying:
“We are delighted to be able to confirm that Commissioners agreed that a project on residential leasehold and commonhold should form part of the 13th Programme and this has been approved by the Lord Chancellor.”
He goes on:
“Our project will commence with a review of leasehold enfranchisement, commonhold and managing agent regulation.”
“On the basis of receiving funding from the sponsoring Government Department, we expect to start work immediately.”
The question for the Government is: have they confirmed that they have the funds to carry out that fundamental job?
In conclusion, leasehold is not only well past its “sell by” date or its “best before” date; it is clearly at its “time to do something now” date. The media have woken up to the abuses. We have had more coverage of leasehold abuse in the past three to six months than we have had for the past decade. House buyers and mortgage lenders have woken up, by not buying where possible and declining to lend on many properties. The Government have reached a point where they need to be seen to be doing something, and they are. However, it is only a start. There are more than 5 million home owners now exposed and vulnerable, with more joining them in almost every new development. Urgent and fundamental reform is required. The Minister is just the chap to deliver. He has allies across the House; many he can see here today and others mentioned by the hon. Member for Worthing West. The fact that we have 130-plus members of the all-party group for leasehold and commonhold reform across both Houses demonstrates that this is a huge issue for millions of people across the country. They are looking to the Government to deliver for them. I look forward to the Minister’s response and other contributions in this debate.
It is a pleasure to serve under your chairmanship, Sir David, on this, our last day of term. I congratulate my hon. Friend the Member for Worthing West (Sir Peter Bottomley) and the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) on securing this debate. As I am sure my hon. Friend the Member for Witney (Robert Courts) will agree, it was a worthy application when it came before the Backbench Business Committee, of which I am a member.
We all agree that there is a need to promote fairness and transparency for the growing number of leaseholders. Historically, leasehold arrangements have been used primarily to manage properties that share a single space and have shared facilities. Where leasehold is used in properties such as flats, it often makes sense, so that there is a collective responsibility for the upkeep of roofs, lifts and entrance areas, and so on. However, as we all know, an increasing number of new build homes are now being sold on leasehold terms when there appears to be no obvious reason why the freehold is not also sold at the point of sale, other than to create an additional revenue stream for developers.
The number of leaseholds, as we have heard, is growing rapidly. While leaseholds may be presented as a cheaper option than buying the freehold, it is not always clear to the leaseholder what additional medium and long-term costs they may face. There are terms of some leases that are becoming increasingly onerous to those purchasing the leasehold for a flat or a house, and they can often expose home buyers to unreasonable and long-term financial abuse.
I have also been made aware that when a number of people bought these properties, they were encouraged by the house builders to use a certain firm of lawyers that, shall we say, may not have fully pointed out some of the potential problems when purchasing a leasehold property.
Indeed, the lack of transparency and information for those purchasing the leasehold is a problematic area. The hon. Gentleman is right to highlight that.
The issues that people face include: paying for ongoing and increasing ground rent, often at unjustifiable and unaffordable levels; paying arbitrary fees to the freeholder for permission to make even the most minor of alterations to a property; and the financial impact of extending the lease or buying the freehold from the developer after moving in.
Leaseholders in England will normally pay an annual ground rent to their freeholder or landlord for renting the land that the leasehold property is on. However, developers are increasingly selling leasehold properties with short ground rent review periods, often every 10 years, which allow for above-inflation rises. Indeed, there have been reports, as was mentioned earlier, that some of those rises have been doubling every decade, well above inflation. Worryingly, these terms are not always made explicit to potential home owners at the time of purchase, leaving buyers open to finding themselves in vulnerable and unforeseen positions years down the line. Even when full diligence was conducted at the time, the freehold can still be sold on later to a third party, even after residents have moved in, by legally out-manoeuvring leaseholders’ right to refuse.
I can quote an example where, if the people had managed to buy the freehold from the developer at the beginning, it would have cost them between £2,000 and £4,000. A year later, when they applied to the so-called long-term freehold interest—often using pension money for purchasing—they were quoted £40,000. When they objected, that came down to £30,000, but they were still left being completed shafted.
There was certainly an iniquity there, which needs to be resolved.
Like many right hon. and hon. Members present, I am dealing with a number of cases and complaints on behalf of my constituents. I am pleased to be able to put some of them on the record in this debate. A resident of the new build estate at Strines in my constituency informs me that he is entering the fifth year of his lease, and the prospect of his ground rent increasing is causing him a great deal of trepidation. He is paying £250 plus a £300 service charge. Along with the worry about the additional strain on his finances, he is rightly concerned at the possibility of his property becoming less attractive for sale.
Several residents of the new build Offerton Park estate tell me that property developer Bellway recently transferred the freeholds to a financial management company called Adriatic Land 6, so they are now subject to above-inflation ground rent increases every 10 years. They were not offered a chance to buy the freehold themselves at a reasonable cost.
The residents of Davies Court in Romiley, with whom I had a very enjoyable meeting last month, and who are predominantly retired, face annual ground rents of £450. That is £450 being demanded from pensioners for the ground their houses stand on. The managing agency for the building, FirstPort Retirement Property Services Ltd, also charges residents spurious administration fees when homeowners carry out improvement works, such as installing fitted wardrobes or new bathrooms, at their own expense. The company even attempted to charge one retired lady an £80 administration fee when she bought a cat. She refused to pay.
These are just a few examples from my post bag that highlight the unfair and, in places, absurd situation.
A similar practice was highlighted just last week by one of my constituents in Winnington in Northwich. One householder tried to sell their property and put up a “For sale” sign, but because of various caveats that applied to the lease, she was told that she had to remove the sign. She could not post a “For sale” sign; does the hon. Gentleman not think that is scandalous?
I am surprised that the agency did not charge a ground rent for the “For sale” sign—that would have been more appropriate—but the hon. Gentleman is absolutely right to highlight that example from his constituency.
I am pleased that the Government are taking action through the recent White Paper to tackle the unfair practices that we see. Future homebuyers may be protected by limiting the sale of new build leasehold houses to exceptional circumstances. I also welcome the Government’s moves to tackle the scourge of escalating ground rents, with the intention to limit ground rents in new leases to start and remain at the peppercorn level.
While I welcome those measures, they really are just the first steps in achieving transparency and fairness for the growing number of leaseholders. They may make the situation easier going forward, but are far more difficult to apply retrospectively. The far more intractable problem—and the one facing my constituents who I referred to earlier—is what to do about current homeowners on existing leases altering the terms of a lease part-way through. Ministers ought to consider what steps could be taken to help those already facing onerous ground rents or unreasonable and spurious administration fees. That could include, for example, steps to tackle unreasonable ground rent rises within existing leases at their next review period, or to strengthen the rights of homeowners for redress for unfair lease terms.
In conclusion, I welcome the Government’s plans to limit leaseholds on future new build homes and to cap ground rents, but I am concerned whether any new legislation will retrospectively benefit homeowners already in this invidious situation. There must be more support for existing leaseholders, including making buying a freehold or extending a lease easier, faster, fairer and cheaper. Leasehold property law is a complex area, and not being lawyer myself, I cannot profess to be an expert. So I look forward to what the Minister, who no doubt has the excellent support of the legal team in his Department, has to say in response to the points raised. May I take this opportunity to wish you, Sir David, and one and all a very merry Christmas?
It is a pleasure to serve under your chairmanship, Sir David.
It is also a pleasure to follow the hon. Member for Hazel Grove (Mr Wragg). Like him, I welcome today’s timely announcement, but there is still a huge amount of work to be done in helping those who are caught in the leasehold trap like many of my constituents.
I first became aware of this issue around Christmas last year, when I was contacted by my constituent, Linda Barnes. She told me that her house, which she had bought new from Taylor Wimpey in 2011 for £147,000, had a ground rent that doubles every 10 years and that had been sold on by Taylor Wimpey to E & J Estates. She had been quoted a price of £35,000 to buy the lease before it doubled.
Very soon after that, I heard from another constituent, Jonathan, who had bought a house from Countryside Properties in 2010 using the Government’s HomeBuy Direct initiative, which was later renamed Help to Buy. Jonathan said that he had been made aware that the development was to be leasehold and that an annual ground rent of £200 was payable to the owner of the land, Countryside Properties. Six months after he moved in, Jonathan received a letter informing him that the freehold had been sold on to a company called Tuscola Ltd, based in the British Virgin Islands. He was quoted over £6,000 to buy the freehold. He also discovered a doubling clause in his lease that meant that by 2055 the ground rent would be £1,600 per year. This is causing him a great deal of concern, because by the time he reaches retirement age his ground rent will be unaffordable and will make his home unsellable. As Jonathan said:
“Considering the significant cost of new homes one would have thought that the last thing one should worry about is the land the house sits on and that it can seemingly be sold on from underneath you.”
Although the property companies may not have done anything illegal, what they have done is morally wrong. They knew full well what those products were. They were making an extra buck on a financial product and they did not give a damn about what happened to the people they sold those properties to.
I totally agree with my hon. Friend and will expand on that point later in my speech.
I have been contacted by many of Linda and Jonathan’s neighbours, and they all tell the same story: that they were encouraged to use the developer’s choice of solicitor when they bought their homes, that they were not informed of the doubling clause and that the prices they are being quoted to buy the freehold are simply unaffordable. Many residents are rightly angry that the developers sold off the freehold to a property investment company without first consulting the homeowners and offering them the first chance of purchase. Many pointed out that the lease on their home is for 250 years, and if the ground rent doubles every 15 years, it will be £13 million by the end of the lease. If the Government do just one thing, they must ban this exponential growth in ground rent.
I am sure that some hon. Members will be familiar with the concept of grains of rice on a chessboard, with the number of grains doubling on each successive square. By the time the 64th and last square is reached, the number of grains of rice is a staggering 20-digit number: more than 18 quintillion, or 2 to the power of 64 minus 1. Clearly, any further attempts by developers to use this deceptive piece of mathematical trickery must be made illegal.
One couple wrote to me to complain that when they bought their property from the developers they actually posed for photographs and recommended the company to other prospective buyers, and that was posted on the developer’s website. The couple now say:
“We would very much welcome being able now to express our very different views and to tell the truth about you as developers on your website. We doubt very much you will give us that opportunity. You have turned what should be our happy home into a very expensive prison.”
Research from the House of Commons Library highlights the fact that leaseholders may be required to seek the freeholder’s consent before carrying out alterations, as many hon. Members have already said. I think that the publicity surrounding this leasehold scandal may have actually emboldened some unscrupulous landlords to make unreasonable demands on homeowners, and I have an example of that from my constituency.
Recently, I and my staff have been dealing with issues raised by residents who have received letters from a company named the Dean and Whipp Ltd Group, asking for money for retrospective ground rents and for payments for alterations such as dormer windows and extensions. These homeowners bought their properties after those alterations had been made. In one case, the homeowner actually discovered that the previous owner had in fact paid the landlord for the alterations to the home when they were carried out in 1978. The current landlord, Dean and Whipp, which had either bought or inherited the freehold, had obviously not checked whether payment had been received in respect of the alterations, and had just sent out the letters demanding payment regardless. That is something that looked to me very much like a fishing expedition.
The behaviour of this company, Dean and Whipp of Dukinfield, Cheshire, is outrageous. It has told me that it will deal only with either me or a solicitor but not both, seemingly missing the point that I can act on behalf of any of my constituents regardless of whether they are using a solicitor. I have written to the Housing Minister about this case, and so far I have not received a reply. As the Housing Minister is here, I would be grateful if, in his concluding remarks, he would say what action he will take to prevent those landlords from acting in such an arbitrary manner. Their actions are causing a great deal of distress to my constituents, many of whom are elderly and worried by the prospect of having to pay such large bills.
I hope that in addition to addressing the issues raised in this debate, the Minister will be able to give my constituents some reassurance that action will be taken against the sharp practice of companies such as Dean and Whipp, so that my constituents might enjoy a peaceful, relaxed and happy Christmas in their own homes.
It is an honour to serve under your chairmanship, Sir David. I join the chorus of well-deserved congratulations and thanks to my hon. Friend the Member for Worthing West (Sir Peter Bottomley) and the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) for securing this debate, and for all their work with the all-party parliamentary group. I entirely echo the comments of my hon. Friend the Member for Hazel Grove (Mr Wragg); this was a very worthy application. I also sit on the Backbench Business Committee, and from my perspective, the issue needs to be raised.
I first came across the concept of leasehold while studying for my law degree in Sheffield. As is often the case in university towns, lots of the law students lived in streets surrounding the department. I was studying for my exams late one night when there came a knock on the door. There was a man there, on that dark, cold, wet winter’s night, demanding £2 for ground rent. When we went in the following day, it turned out that the same thing had happened to everybody on the same street; it had obviously been the annual whip-round. It became something of a curio—a legal curiosity that formed part of our studies as much as anything else—but in the years since then, it has become clear that the issue of leasehold on flats and houses is anything but a curiosity. It is absolutely iniquitous, and reform is needed urgently.
Let us assume for a moment that someone works hard at their job—perhaps they and their partner work all the hours that God sends—scrimping, saving and going without to put aside money for a deposit, and then goes to buy a house. In the flush of excitement at having successfully saved a deposit and secured a loan from a company, they agree to a ground rent of £200 or £300 a year. They might take that on, but as the years go past, they realise that it is simply another income stream for developers. In fact, it is a lot of money—more money than they can afford. Worse, as we have heard, the terms and conditions attached mean that their liabilities grow year by year. That flush of success soon turns sour.
Let us assume that someone buys a flat on a long leasehold term—99 years, for example. They may find after 15 years that they must renegotiate and ask for an extension of the lease. They may be granted one, at a cost of £5,000, £6,000, £7,000, £8,000 or more. They could enter into the process for leasehold enfranchisement, of which I also have experience; to earn money while I was waiting to go to bar school, I worked for a while as a paralegal in the leasehold enfranchisement department of a law firm. I can inform hon. Members—although, of course, this audience needs no such information—that the law is fiendishly complicated and devilishly expensive. That is the situation in which leaseholders of houses and flats on long leasehold terms all over the country find themselves. It is iniquitous, and, as an hon. Member opposite said, it is a trap.
I suggest that reform is needed urgently. I will not speak for long, because I know that many others want to speak and add their practical experiences and those of the constituents who have written to them, but there is a great deal that the Government can do. I am delighted to see today’s announcement, but as other hon. Members have said, it is the beginning, and there is much more to be done.
I am glad that legislation will be introduced to prohibit the sale of new build leasehold houses and to restrict ground rents, but as we can see, and as Members have said, the real issue is legacy leaseholds and the people who are already in the trap, and I would like to press the Government on that in particular. What do the Government plan to do to support existing leaseholders by making it easier to buy a freehold or extend a lease? I have referred to both those points. They are extremely difficult and expensive at present, and I would like to know how they will be made easier, faster, fairer and cheaper. What role of the Upper Tribunal (Lands Chamber) might be extended in such circumstances? How can the law of commonhold, which was introduced but has not really taken off, be strengthened and extended?
This is not the time for me to go into the issue in any detail, but I would like the Government to consider that all of this grows from a historical anomaly. My example in Sheffield arose, as I understand it, from the fact that factories bought land and built houses on it, and that over time, different houses have been built but the land has been kept. The whole mess arises from historical legal points involving covenant law, and it all needs deep reform, root and branch. I ask the Minister to consider that. He might not be able to give me an answer now, but I would like to hear from him on that in due course.
I welcome the announcements made this morning about addressing the sale of new build leasehold homes, ground rents and loopholes in the law, but such law has no place in modern England. It does not exist in other parts of the world, as we have heard. Although I welcome what the Government are doing, I ask them to consider moving towards the long-term abolition of long leasehold tenancies in this country. They have already promised to do a lot, but much more can be done to help those who need help—those for whom affordability is a massive issue, and who find themselves in a trap that is complicated, expensive and not of their making.
Thank you, Sir David, and merry Christmas. It is a pleasure to follow the hon. Member for Witney (Robert Courts); it was interesting to hear his experience as a law student. A ground rent of £2 was probably a bit of a bargain compared with the problems faced by many of our constituents.
The House of Commons Library notes on the subject point out that there was a spike in leasehold sales in the north-west of England; 69% of all new properties in the north-west were subject to leasehold arrangements in which the developer retained the freehold. Several hundred of those properties are in Knowsley. For those who do not know my stance, I am one of those people who is not quite sure what the north-west is, but whatever it is, we in Knowsley are getting the phenomenon on a large scale.
I pay tribute to the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick), who have been raising this issue for a long time, whereas many of us have come to it more recently through the experiences of our constituents. I will highlight a couple of points, and then say a few words about the measures announced by the Secretary of State last night.
First, others have made the point about the use of conveyancing solicitors recommended by the developer who also work for the developer. The best that can be said is that that creates the impression of a conflict of interest. From what constituents have said to me, there was a conflict of interest in some cases. The hon. Member for Hazel Grove (Mr Wragg) was right to mention a need for more transparency. There is also something inherently wrong about the same legal practice dealing with both the developer’s interest and the purchaser’s interest.
Buyers were not informed that they could purchase the freehold. I have ample evidence from many constituents, which I will quote, that that did not arise in conversations with sales staff. Even if they were vaguely made aware, they were certainly discouraged from exercising the option to purchase the freehold. To achieve that, they needed a great deal of persistence, because it was part of the business model that the developer retained that interest, either to have continued income or to sell the freehold to another managing agent.
Does my right hon. Friend accept that many of the purchasers in my constituency—and no doubt in his—were first-time buyers using Help to Buy, who were not clear about the house-buying process as a whole? In the circumstances that he has mentioned, they find it even more confusing.
My right hon. Friend is absolutely right; that is another complicating factor. I will quote what some of my constituents have said about this—I will not name them because I have not asked their permission. The first said:
“Why were we not given the full facts of exactly what it was we were buying into? We haven’t bought a home, we’ve bought a license to live in the house until the lease expires. Please tell me, where is the security in that?”
Another constituent said:
“we bought a Bellway home in Huyton unaware that Bellway were going to sell on the freehold to a private company without giving us the chance to buy. The increase is immoral and totally unfair”.
The third constituent said:
“I was never told I could purchase the leasehold although I now know some people on the estate purchased the leasehold at the time they were buying. I thought Bellway would manage the property for many years to come, not be sold off to the highest bidder who would raise their fees whenever they want to. I feel ripped off by Bellway”.
That is what some of my constituents say.
Most of the properties in Knowsley that I am talking about are houses—starter homes, as my right hon. Friend the Member for Delyn called them. On some estates, some flats are mixed in. One constituent asked my office to contact the developer of his flat, Redrow, to find out what would be involved in purchasing the freehold. Eventually, somebody called Steve at Redrow replied—“kind regards, Steve.” We got a reply; the company conceded that the residents in the flats could purchase the freehold, which, of course, is their statutory right. The end of the reply, from December, states:
“As you will appreciate the 2 month notice period is only a first step, and should give residents time to decide whether it would be something they would wish to pursue.”
A group of residents makes the effort to look at a freehold arrangement, but they only have until the end of January to find out where they would get the money from, and to find out whether a majority of them want to go down that route. I would think that that is almost impossible. Anyone who has ever been involved in a house purchase knows that these things take a lot longer than that. There is a lot going on.
I welcome the announcement by the Secretary of State. The hon. Member for Hazel Grove said, “So far, so good”. We hope that the work that the Law Commission will be asked to do will provide a way forward for my constituents who have bought new homes, although there is no guarantee. It worries me that a lot of those developers will see some kind of control or legislation that will curtail their activities looming ahead of them and will hurry to sell those homes so that they are not left with a liability. I realise that with potential legislation pending, that might not be the most attractive sale ever, but nevertheless it is a worry.
In my constituency of Weaver Vale, Morris homes is selling houses in a development in expectation of the new arrangements, and literally on the other side of the street, people are caught in the scandal we are talking about. Their homes are simply unsellable.
My hon. Friend makes a very good point. Was someone else trying to intervene?
If my right hon. Friend is offering, I will.
I did not have my right hon. Friend in mind, but I can never resist giving way to him.
My right hon. Friend is most kind. Listening to the powerful testimony on all sides of this Chamber, peeling the layers of an onion to see the full nature of this scandal, does he agree that it is impossible to reach any other conclusion than that the developers are responsible for this? They must have known what they were doing and what they hoped to gain by selling the freehold on to others who then engaged in the sharp practice that we have heard about. They bear the responsibility. The law will stop them from doing it anymore, but they also need to compensate people. Bearing in mind what has happened to developers’ profits —Miller Homes, which I mentioned earlier, announced earlier this year a 44% increase in their pre-tax profits—they can afford it, and they have a moral responsibility to compensate people they have put in an untenable position.
I am glad that I gave way to my right hon Friend; the point he makes is right. People should be compensated for what has happened to them. It is disgraceful and it should never have happened.
I conclude by asking the Minister—I realise that it is quite a delicate thing to do—to consider whether the Government can discourage developers from disposing of freeholds to management companies until it is clearer exactly how this problem will be tackled? That would be very helpful. I realise that it is a tricky area legally speaking, as we heard from the hon. Member for Witney. Nevertheless, I would certainly welcome whatever could be done to discourage or freeze any further transactions for the time being, and I know that all my constituents who have been affected would welcome that, too.
It is an honour to speak under your chairmanship, Sir David. I congratulate the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) on securing this debate. Notwithstanding the announcement that was made today, like other hon. Members I have a number of constituents who have been adversely affected by the vexed issue of leasehold versus freehold ownerships.
Many people in north Tyneside have purchased homes where freeholds have subsequently been sold to a third party that puts extortionate prices on the purchase of leases. One couple who bought their new home five years ago were told that they could buy the freehold for about £4,000, but the sales rep discouraged them, saying that they would not have to worry about it for a couple of years. It was already an expensive time for them so they decided to take just the leasehold option. Since then, they have been informed that their freehold has been sold on twice. They contacted a specialist solicitor, but could not afford the fee to ascertain the cost of enfranchisement. They fear that they may never be able to buy the freehold and that they will be left with an unsaleable property.
Another constituent is caught in what is known as the “fleecehold” situation. She is a freehold owner of a new build house but has received an invoice for service charges from the estate management company on behalf of the developer. She was a first-time buyer and vaguely remembers something being mentioned about a rentcharge. When she queried it, she was told that she was buying the freehold and that that was an estate management charge towards the upkeep of the estate. She paid the amount via her solicitor for the first year and heard nothing about it after that, until she received an invoice a couple of months ago.
Subsequently, she looked at her responsibilities regarding the fixed rentcharge. She found that it had now doubled, with 43% of fees to be paid to the management company. What concerns her most is a statement in her transfer document that says that the rentcharge is associated with rights of re-entry and that if it falls into arrears, the rentcharge owner can repossess her property and enjoy the same rights as if the transfer had never been made. That was never made clear to my constituent. If she had known, she would not have bought her so-called freehold property.
My constituents are right to be concerned about finding themselves in such a position in relation to the biggest and probably most important purchase they will make in their lives. I am glad that 20 hon. Members, some of whom are here, supported my recent early-day motion on fleecehold, which asks the Government
“to investigate this practice as a matter of urgency and with a view to first clarifying the law and then outlawing this practice.”
I hope the Minister will make reference to that.
The hon. Lady’s early-day motion is very important. The Government should consult on whether it is possible to refer the matter to the Competition and Markets Authority and have that kind of clause struck out as unfair, unreasonable and unenforceable.
I am grateful for the hon. Gentleman’s straightforward statement.
It cannot be right that sales reps quote prices for the freehold but do not deliver, or that a freehold can be sold to a third party without telling residents. Nor can it be right that solicitors do not inform home buyers of the pitfalls, or that residents find themselves with charges and restrictions far beyond the original agreement.
The list goes on, but in the end, like my constituents, current home buyers are left worrying about what that means for reselling their houses. Although the Government’s announcement is welcome for future home buyers, I hope they take note of one of the country’s leading building societies, Nationwide—of which I must declare that I am a customer—which has changed its lending policy to protect people who buy new build leaseholds. It wants the Government to take action by preventing the Help to Buy equity loan being available for sites where new houses are being sold on a leasehold basis.
Is my hon. Friend surprised to hear that Nationwide’s pension scheme has purchased the freeholds of an estate of properties in my constituency, which will be managed by a company that charges similar rates and fees to those mentioned by my neighbour, the hon. Member for Hazel Grove (Mr Wragg) —around £100—to get any sort of pet? Should a company take that sort of action with one hand while asking for action with the other?
I hope that Nationwide is duly embarrassed by what my hon. Friend has said.
Unscrupulous developers and agents are profiteering on the backs of thousands of ordinary people, who struggled and worked hard to buy their homes. The Government have to go beyond what they announced and act now to end what nearly amounts to extortion.
I thank the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) for securing this debate. I shall say straight away that I welcome the Government’s action last night, which will be helpful for the future.
My concern, which relates to that of other right hon. and hon. Members, is about what happens between now and the point at which any legislation is implemented, and what happens for all our constituents who have faced difficulties and challenges in the past. Those challenges have been so difficult for some of my constituents that they do not want the estates and houses that they have been involved in to be publicly identified because they fear a further loss of income on any future sale of their property.
Before I ask the Minister some specific questions, I will touch on a number of key areas of concern—similar to those outlined by other hon. Members—that have been raised with me: first, the lack of information at the time of purchase, which has been mentioned already; secondly, the concerns and information around the onward sale of freeholds to third parties; thirdly, the issue of what happens on split sites, which my hon. Friend the Member for Weaver Vale (Mike Amesbury) mentioned in his intervention; and fourthly, the element of devolution.
On the lack of information, I feel like I am in an echo chamber. The points that have been raised with me have also been raised throughout the debate, but are worth repeating. My constituents, of whom many were first-time buyers purchasing with Help to Buy and who were grateful to the Welsh Assembly and the UK Government for helping them, were forced to use solicitors recommended by the building company; did not get an explanation about what freehold or leasehold mean; did not get an explanation about potential future charges; never had it explained that those freeholds could be sold on to a third party, which might impact on their finances at a future date; and were offered different prices by the same company for the same freehold.
For the same house and the same freehold companies offered £1,500, £5,000 and £7,500 at the same time at purchase. People said, “Well, I cannot afford that now because I am on a Help to Buy scheme. I’ll undertake whatever you think is best for me,” and the advice was to have the leasehold, so people have found themselves on that. We need to revisit that for the future and get some clarity from the Minister about what that means now for people who have undertaken that scheme recently.
Onward sale is important. I know that the Minister will deal with that for the future and will consider completely banning the sale of leaseholds as a matter of principle, but I have a situation now where my constituents bought a property and the leasehold from what they thought was a reputable company, but found that the freehold has been sold on to a third party. Shockingly, my constituents did not even know and were not offered the chance to buy it at that time. In one example, one person happened to see the sales director of the company on site and asked to buy the freehold, which was sold to them, but the freeholds of the other 21 properties were sold to a third party. Only later did my constituents find out that that sale had taken place. They were not offered the chance to purchase as a first port of call, even if they had wanted to.
I think I am right in saying that the law is that if they had been in a residential flat, the freehold could not have been sold without it being offered to them. That should have been the law for the houses, but I suppose it was not because no one imagined that anyone would ever sell a leasehold house again.
I am grateful for that clarification.
This is not about the future; I am sure that the Minister is already receiving representations on a cross-party basis about what should happen in future. It is about how we deal with the past. For example, my constituents who wished to purchase the freehold from the company that had bought it—as they found out only at a late stage—not only have to pay an initial investigatory charge of several hundred pounds, but a premium of £1,000 on the purchase price. Many of the people in that position are either first-time buyers or retired. One of them, a former constituent of the shadow Secretary of State, my right hon. Friend the Member for Wentworth and Dearne (John Healey), who moved to my area to retire, has raised the issue with both of us. What is the situation with buy-back at a fair price and with fair charges? How will the Minister deal with those issues?
I mentioned split sites. There is a very big development site in my constituency, and when this scandal broke halfway through the development, the company in question decided, “Let’s get out of this quick—let’s forget this and try to limit our liabilities. We’ll sell the freeholds to the customers buying the houses.” Half the massive estate of 400 or 500 houses now has a leasehold with the company, and the other half is being developed without leasehold. How will somebody who has bought one of the houses with a leasehold ever be able to sell it, when—as my hon. Friend the Member for Weaver Vale pointed out—owners of houses on the other side of the street have a different situation as regards the leasehold and potentially different liabilities? Nobody will buy a house from the half of the estate with leaseholds if they can buy one from the half without.
I approached the company, which I will name; it is Persimmon, whose chief executive’s bonus this year was £118 million. When I asked whether it would sell or give the freehold to my constituents on the same basis as to the others, the answer was no. It said that it would sell it for £3,750—at a time when it is giving £118 million to the chief executive alone. My constituents, who have stretched themselves to buy their house in the first place, cannot afford to pay that. I then asked the company whether it would ensure that it did not sell the ground rent on in the meantime. Very gratefully, I am sure—that was sarcasm, for Hansard’s purposes—its reply said that
“we will not sell the ground rent to any third party until at least two years following the purchase of their leaseholds. In the circumstances we are prepared to confirm a minimum date of 14 July 2019, being two years from the date of our meeting.”
So Persimmon has said that it will not sell that on for the next two years, but there is no guarantee beyond that. My constituents cannot sell their houses, because over the road similar houses are being sold as freehold, but they are finding it difficult to pay the £3,750 because they are already stretched. That is particularly important for the Government, because many of these people are on Help to Buy. When the value falls, not only do the constituents struggle, but the Government lose out on any potential sale.
My last point relates to my personal circumstances. My constituency is as near to England as the south side of the river Thames to the House of Commons; we are literally two or three miles across the border. My hon. Friend the Member for Alyn and Deeside (Mark Tami), who was present earlier, is in a similar situation. The majority of houses in my constituency are built by companies based in Manchester, in the north-west of England. What discussions has the Minister had with the National Assembly for Wales, which has devolved responsibility for housing issues, about his proposals and plans for the future? If he introduces a ban in England, will it cover companies based in England on sites based in Wales? If he introduces regulations, what will the parallel consequence be for the National Assembly for Wales? My constituents are using these schemes, but the materials have been made in England, the profit is going to England and the policy was developed in England. That needs to be clarified, so will the Minister tell us what is happening with the Welsh Assembly?
I have three solutions for the Minister. First, he could work with the National Assembly for Wales, as well as in England, to give a definitive right to buy to constituents who have a leasehold with a third party or a particular company. There is even an argument that he should exert real pressure for a right to be given the freehold as part of the price. In my constituency, houses are being sold at the same price freehold as they are leasehold. That is simply not tenable. It is an extra piece of profit for a company that is already paying its chief executive £110 million.
If the Minister cannot get freeholds given freely, he needs to consider a price cap—and if he cannot solve that problem, he should at least consider a price cap on the charges that may accrue for future generations. The continued rise of the price as regards leaseholds is not acceptable. If he cannot find a mechanism to compensate people, he could legislate to freeze the price at its current level.
The Minister should also consider helping people who have bought a house on the Help to Buy scheme, but who now wish to actually buy what they thought they were buying in the first place: the land on which the house was built. Introducing a mechanism to give financial support to them to buy the freehold would be an extremely good contribution.
I welcome what the Minister has done so far. I know that we are in a pickle and a mess, although in a way I am relieved to hear that the problem affects not just people in Delyn and north Wales, but many others. There are real challenges for the people who are in this mess, and the Government and the Welsh Assembly have a duty and a responsibility to try to resolve it.
It is a pleasure to serve under your chairmanship, Sir David. I thank the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) for introducing the debate. I also thank our colleagues in the Leasehold Knowledge Partnership, who have been a great help to me, both as a constituency Member and in my former housing role on the Opposition Front Bench. Frankly, they have been doing the work that LEASE should have been doing, but they have not been funded to do it by the Government. They have done a sterling job representing leaseholders and supporting the Members, local authorities and others who have supported leaseholders in recent years. I was on the Front Bench when we debated leasehold and commonhold reform on 20 December 2016 —a year and a day ago—but I will not repeat the arguments of my speech in that debate, which can be easily found.
There are many leaseholders in my constituency who live in the blocks of flats that have been built there in recent years, particularly in Brentford, my home town. Things have moved on in the past year, and many of us are grateful for the new tone from the Department, which can be seen from the release that it issued last night at midnight. Relatively recently, however, we have seen a racket growing, particularly from developers.
Ground rents for houses mean that people who had thought they owned their home actually own a depreciating asset. The racketeers are withholding the right to own and the right to manage. Freeholds are being sold on without notice. Links between freeholders, conveyancing solicitors and managing agents are far too close. People are having fees demanded of them on conveyancing that the solicitors did not originally tell them about, as well as fees for changes to homes, building extensions, sub-letting and so on. I was perturbed to hear from my hon. Friend the Member for Heywood and Middleton (Liz McInnes) of people being charged again down the line.
That is absolutely shocking. The examples we have heard already in this excellent debate show that elements of the private sector, instead of doing their job as developers and in some cases managing agents, are frankly taking homeowners for a ride, and that has to stop. We have heard about a series of things that are symptomatic of how freehold ownership has become an asset class in itself. Money is being made not on buying and selling, but on owning and ripping people off, and that has to stop. The extent of the problem is illustrated by the fall in the share price of McCarthy & Stone and other developers on the back of the Government’s announcement this week. That shows how much of their asset value is based not on what we should think of as their core business, but on these appalling practices that we have been hearing about.
I am grateful to the Government for the movement they have made on new build leasehold houses, ground rents and protecting leaseholders from possession orders. I also welcome the additional staffing in DCLG, and I hope that those things are an indication of a new-found commitment to serious change. Will DCLG fund the work recommended in both parts of the Law Commission’s report? The first part recommended a simplification of the law and improved fairness and transparency for leaseholders. The second part of its release earlier this week looked at the assignment of leases under new contracts, ground rents, which the Government mentioned, high fixed service charges and fees on assignment.
The single biggest opportunity for the Government is the introduction of a commonhold law that works. England is perhaps unique in that we have a lack of true rights for the owners of flats. We should learn from similar jurisdictions, such as Australia, and nearby jurisdictions such as Scotland. Previous Tory and Labour Governments have tried introducing commonhold law that works, and my right hon. Friend the Member for Wentworth and Dearne (John Healey) tried to do that. I am sure he will refer to that later this afternoon. Let us have another go at ensuring we get a commonhold law that works, because it would put a permanent end to the racketeering practices we have heard about today. The Minister can be assured that if the legislation he proposes is good, he will have support from many Opposition Members.
Among other things, the Government need to end the false departmental divide between the Ministry of Justice and DCLG and bring all the issues into one place. Like other Members, I ask the Minister to address the situation of the hundreds of thousands of victims of the current law who seek recompense for the failures so far. We cannot let them be left high and dry. We also need to address the challenge for residents’ groups in leasehold blocks of flat. Let us not forget that residents’ groups work as volunteers. Many have gone through or are going through the ever-twisting hoops to set up a resident management company. Some are trying to seek ownership. Even when they do not have the kind of freeholder that we have heard about today, that is a lot of work in their own time, and they need recognition and support for that. I hope the Government will take that into account.
Finally, I want to talk about post-Grenfell fire cladding. In my constituency, we have more than 300 leaseholders in the Blenheim Centre in Hounslow. The freeholder, Legal & General, has agreed to pay the full cost of the recladding that will need to be done and the back pay of the fire marshals, who were costing the leaseholders an awful lot of money. The total bill could be £10 million. I am also pleased that Notting Hill Housing has agreed to fund the recladding in the modular housing at the Paragon development in Brentford. That is not because of inflammable cladding, but because of the lack of fire breaks. My understanding is that those two cases are exceptions to the rule. There are an awful lot of leaseholders in flats across England where the freeholders are not prepared to pay the cost of recladding. There is an awful lot of uncertainty, and we have not seen a response of any substance from the Minister. We look forward to hearing that today.
The hon. Lady has raised a point that the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) also raised. LEASE has been given extra responsibility for trying to help people living in blocks that may be affected by post-Grenfell issues, but what is presently on the LEASE website is totally inadequate. It may be a start, but it is not good enough. LEASE should get together with the LKP to use the LKP information. That information has already been of advantage to a number of residents, and it could be of advantage to more. It will not solve all the problems, but why not try to put all the information together, rather than staying away from some of the people who have been helpful and putting responsibility on those who have not?
I concur with the hon. Gentleman’s comments. He is absolutely right. Mere words of comfort and a promise of mediation are not what leaseholders are looking for. Many leaseholders are working people or retired. All of their wealth and quite a lot of debt is tied up with their homes, and there is an awful lot of stress and worry across the country on the issue. I hope we will get something from the Minister today.
All that is left for me to do is to wish merry Christmas to you, Sir David, to fellow Members and to the many parliamentary staff who make our jobs possible in this place.
Thank you for calling me in this debate, Sir David, to add my voice to the pertinent points that have already been raised. I also thank the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick)—they lead the all-party group—for securing this debate and all the work they have done to date.
[Mr Peter Bone in the Chair]
This problem is very big in the north-west of England, but based on the contributions today it is clearly a nationwide problem. The Library has provided information on the constituencies with the highest proportion of leasehold sales of houses. Seventeen of the top 20 constituencies in the country are in the north-west, and 14 of them are in Greater Manchester, so the problem is at epidemic levels in my part of the world. We sometimes hear the argument that there is somehow a market with varying costs between freehold and leasehold properties, but that does not apply to us when the majority of tenures sold for houses or flats are leasehold.
I am genuinely shocked by the stories I hear in my constituency and that we have heard in this debate. I am not a man prone to hyperbole, but I would go so far as to say that the only fair description of some of the practices we have heard about in this debate is legalised extortion. There is simply no relationship between the services being rendered and the costs charged for them.
I will be as brief as I can because so many colleagues wish to speak, but I want to give a number of examples from constituents, all of whom were only too happy to be mentioned in the debate to illustrate the point about the costs being extorted in relation to the services offered. Gemma Hornbuckle lives in Ashby Gardens in Hattersley in Hyde. She says that the charges she is facing are
“only getting worse to the point where we are unable to keep up with the payments. They are making the properties worthless and causing that much upset and stress that we need something to be done urgently.”
Gemma is paying £2,000 per year, and her costs, when she receives them, are not itemised. She says that the bills that are sent are confusing, and the penalty charges if she does not pay are outrageous. Let me tell hon. Members about the latest development, which is hard to believe. She says that the latest bill includes a quote for the 18 apartments in her block to be decorated. Of course, by that I do not mean the apartments themselves, but the communal areas—just the hallways. The quote for that work is a staggering £32,000. I do not see how anyone could stand up and defend that.
Mr Stuart Ryan, another constituent, lives in the same area. He says he did not know about the costs, but was told by the management agent that they are simply part of the terms of sale and are in the deeds. Colleagues who know a little bit about Greater Manchester might know that Hattersley is one of the most successful urban regeneration housing schemes in the country. It took a huge amount of resources under the last Labour Government, and was originally one of the overspill estates from Manchester City Council. It is a fabulous story of urban regeneration and success, and activities such as this are frankly blighting that very successful legacy, which is extremely distressing to hear.
Another issue is what happens when constituents try to solve the problems using the apparatus currently available. Another constituent, Simone Potter, says that she inquired what the charge would be for the purchase of her freehold. She was told by her management company that there was a charge of £180 to make any inquiry—£180, just to ask them a question. When she made the inquiry, they came back to say the freehold was not for sale in any case.
Alison Hinchcliffe also inquired what the cost would be to purchase her freehold. After a number of attempts to negotiate a fair price, she was told that her only recourse was to go to a tribunal. Of course, that will instigate a whole series of court costs. She is waiting to see whether the Government will take decisive action to give her a more obvious and satisfactory remedy.
I could go on, and I imagine many colleagues have a range of stories like this. I will share just one more story, from someone whom I know. She is not from my constituency and did not want to be named, but I can say that she is a key worker—a police officer. She bought her property this year. She was told that the service charge would be nearly £2,000, but that it would be split into two payments during the year. Last Monday, she received a bill for the whole £2,000—seven days before Christmas, which would not be easy for anyone. She says that the request for payment does not contain any of the basic information she would have expected. It does not say when the amount is due, nor whether she has to pay before or after Christmas. It does not explain why they are charging for service works that pre-date this company taking charge of the development. That cannot be a reasonable cost for her to pay. It does not say how the costs have been calculated, which is crucial because there is a term in her contract that says that any underspend will be credited back to tenants. It does not give any information on how they have reconciled the accounts to comply with the terms to which people have already signed up. She says:
“The whole world is murky and as it currently stands as with most housing issues it relies on tenants organising themselves and individuals dedicating enormous effort legally and financially to fighting these companies who are failing to deliver services for the money charged.”
I think that is an entirely fair description of the status quo, which is clearly unacceptable. It is superb to see so many colleagues from across the House, and the Government, saying that they are willing to take action, as this issue is clearly damaging a great many lives.
My right hon. Friend the Member for Delyn (David Hanson) talked about first-time buyers. We have all been in that position of moving into a newly-built property, perhaps with a spouse or partner, for the first time and thinking about the carpets, flooring, fixtures, and furnishings. Purchase of the freehold, even if it is offered, will always be a more abstract and less tangible thing to think about purchasing. It is easy to see how so many people have found themselves locked into this trap. Clearly, this issue will also cause severe damage to the housing market. As my right hon. Friend said, if somebody has an option about whether to be put into this trap, perhaps in a similar development on the same piece of land in the same area, it is pretty clear that they would not voluntarily get themselves into that position.
In terms of remedies, it is clear from today’s debate that no more properties should be sold with this form of tenure, but clearly there must be a straightforward right-to-buy formula that is standardised and national, in order to avoid the kind of regulatory arbitrage that we have heard about today. I think a price cap on not only the overall cost but the charges that can be levied for inquiries and questions would be entirely fair. I also do not think it is too strong to propose that some consideration be given to whether some of the terms of these leaseholds should be rendered void as unfair contractual terms—particularly those provisions about doubling the costs, which my hon. Friend the Member for Heywood and Middleton (Liz McInnes) described, with the overall cost, when considered in aggregate, an absurd amount of money. The closures on forfeiture are, to my mind, entirely unjust, and should form no part of such a leasehold contract.
If solicitors have been recommended by the developer and that has led to a substandard service, clearly the Law Society should look at that, but there have been several examples in British legal history of courts finding that contracts should never have been entered into because people signed up to unfair terms, because the advice was not sufficient, or because quite simply the contract should not operate in that way. I am thinking, for instance, of local authorities and interest swaps in the 1980s. Those contracts were rendered void. That needs to be considered. I am really distressed to hear that some pension funds may have entered into this as an asset class, particularly because I cannot believe that with their expertise they would not know what they were entering into. Anyone with any sense of political risk would understand that this issue might be something the Government would look at, no matter who was in charge.
It goes a stage further than that. There is a case going to appeal—the Stanley v. Mundy case—where the Wellcome Trust, which bought freeholds from the Henry Smith Charity, has managed to persuade a property tribunal that the rate at which people pay for extending leases should be much higher than at present. In fact, most of the evidence is that it should be lower. Governments should get involved in that and produce a chart that gives fair prices. If freeholders want to challenge that, they should guarantee to pay the costs of the leaseholders—not the other way round.
I absolutely agree. My distress is even greater after hearing about that situation; action like that will cause great distress across the country. As I say, I cannot believe that any organisation to whom leases have been sold on, these leaseholders, asset classes, or any pension fund that has got involved in investing in them, would not have made a reasonable assessment of the political risk involved. It is clearly unjust. I cannot imagine any colleague from any party standing up to defend the kind of constituency examples that have been shared in today’s debate.
The time is clearly ripe for action, and there is clearly a consensus for strong action. My only plea to the Minister would be this: for many constituents, this matter is urgent. It is blighting their lives and affecting their quality of life. It is clearly affecting the liquidity of the housing market, and whether people can make reasonable decisions about their households going forward. We need the action to be as swift as possible. Clearly, it is not straightforward and there are issues to resolve, but I cannot believe that anyone who has listened to today’s debate, or others that have taken place, would not agree that there is consensus for political action. Please, Minister—let us get on with that as soon as possible.
It is a pleasure to serve under your chairmanship, Mr Bone. I, too, congratulate the hon. Member for Worthing West (Sir Peter Bottomley) on securing the debate, on the way he has, alongside my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick), campaigned on the many abuses in this sector, and on the way they have both led from the front with their joint chairing of the all-party parliamentary group on leasehold and commonhold reform. I am proud to be the group’s vice-chair. They have been superbly assisted by the Leasehold Knowledge Partnership, about which we have heard today. Collectively, they have all done a great job in bringing this issue to the attention of parliamentarians and members of the public.
I first spoke on this subject in the Chamber almost a year ago, at which point I described the scandal as the
“the payment protection insurance of the house building industry.”—[Official Report, 20 December 2016; Vol. 618, c. 1342.]
However, as more serial failures, incompetence and greed have emerged, I do not believe that such a description does it justice—and it is justice that millions of householders up and down the country now seek.
Where do we start with all this? We know that leasehold has been around for a very long time and has always had problems, particularly in relation to flats and buildings with common parts. However, in recent years it has become a cash cow for developers—household names, whose reputations have rightly been damaged because of their avaricious approach to the very people who now find themselves unable to sell their homes, long after the developer has fled the scene. I am still waiting for someone from the house building industry to come up with a credible explanation as to how doubling ground rents provides any benefits to the leaseholder. I have heard countless tales about what salespeople say in the show home, how the nature of the tenure is not raised until very late in the day when commitments have been made, and how advisers have failed to inform purchasers about what they are being asked to sign up to.
It is also disappointing to see a certain smugness in some quarters regarding those who purchased leasehold houses, with suggestions that they should have known better. That ignores several factors, including the fact that many purchasers seem to have been let down by the advice that they received. One example that recently emerged was a property ombudsman case in June, where a long-term leasehold had been described as “virtually freehold” to purchasers, which is on a par with being a little bit pregnant. Ultimately, the ombudsman found in the purchaser’s favour that there was no such thing as a property being virtually freehold, and directed the sales agent to return £1,100 in legal and survey fees, as well as an additional award of £200. The fact that such a paltry penalty has been applied shows the desperate need to reform the market. Just over £1,000 refunded for a blatant mis-description of the biggest purchase anyone is likely to make is hardly a deterrent to those wanting to make a fast buck.
If so many people say that they feel they were not fully informed about what they were being asked to sign up to, I can only conclude that the problem does not lie with them. A survey of my constituents found that 92% who had used a recommended solicitor said that they felt they were not fully informed about the ground rent terms ahead of purchasing their home, That goes down to 71% for those who had chosen their own solicitor. Almost two thirds of those who responded said they had used a solicitor recommended to them by the developer, a figure that increased to 77% among those who had purchased their property using the Government’s help to buy scheme.
We have heard anecdotally that purchasers have felt pressured to use a solicitor recommended by the developer, and in some cases they felt they were required to use a recommended solicitor. In other cases they were told that only a recommended solicitor who was familiar with the development could meet the short amount of time imposed by the developer to complete the purchase. Again, why developers were insisting on time limits as short as four weeks to complete purchases is something I have never had an adequate explanation for. We wrote to all the main developers and a number of recommended law firms to ask them questions about this practice. They all denied that they required or pressured customers to use recommended solicitors, but some admitted advising purchasers that panel solicitors would be able to deal with conveyancing more quickly because they had experience of the sites and processes.
I thank my hon. Friend for all the work he has done on this matter. Some of the practices involve offering incentives to people such as a kitchen upgrade or curtains and carpets being included in the purchase, but such incentives would be forfeited if they did not complete the sale within the prescribed amount of time, thus making people feel they have to go ahead and complete quickly.
My hon. Friend is absolutely right. As we heard earlier, when people purchase their homes they are focused on the tangible things, not the intangible concept of leasehold and freehold, which in the long run is the most important thing, which is why we are debating it today.
It is fair to say that some solicitors have more familiarity with practices, but the suggestion that there was no actual requirement to use particular solicitors has been exposed. We asked developers a simple question:
“Do you make offers that are subject to the use of a nominated solicitor?”
Barratt Homes told us:
“Our policy is not to make offers contingent on the use of any particular solicitor.”
However, its old terms and conditions state:
“All Barratt offers are subject to the use of a Barratt nominated Independent Mortgage Advisor and Solicitor.”
Persimmon told us:
“It is not company policy to do so.”
Its old terms and conditions state:
“NewBuy scheme is available subject to status, terms and conditions and using a Persimmon-nominated solicitor and/or financial adviser as necessary.”
Taylor Wimpey simply told us no, but its old terms and conditions state:
“Applicants will need to use a Mortgage Broker and Solicitor from Taylor Wimpey’s panel.”
Despite leaseholders paying for legal advice from solicitors who had a duty to act in their best interests at all times, the recommended solicitor model put the relationship between client and solicitor in danger of being a secondary concern.
Bannister Preston is one of the larger firms representing clients caught up in the leasehold scandal, including many from my constituency. However, at the same time as it was doing this, according to its Twitter feed it would often visit developments and make comments about the homes such as:
“quite unbelievable properties, spec and finish.”
Although that description might be true, it was also asked to speak at numerous meetings and training events held for developers, and seems to have enjoyed their hospitality on various occasions. I will not go through all the tweets now, but one from December 2013 sticks in my mind. Staff were invited to a cocktail-making event with the team from Taylor Wimpey and joked about having a hangover. When they woke up the next morning, full of regret for what they had done, wishing they could go back and change it, they had a minor glimpse into what life is now like for many of my constituents stuck with unsellable homes. This might all be innocent, but the perception, at least, is such that the developers need to come before a Select Committee to explain the precise relationship they had with solicitors.
We are pleased that the Government have responded so positively to the consultation on ending unfair leasehold practices. It seems they will address many of the concerns raised, but I hope that when the Minister replies he will address some of my outstanding questions. Many concerns relate to the ongoing situation that leaseholders find themselves in. The proposal for ground rents to be zero in new long leases is welcome, but there appears to be nothing to tackle the existing leases with onerous ground rent clauses in them. Many are now at the tenth anniversary date, when the ground rent doubles, but it appears from the Government’s response that we cannot expect anything to outlaw that particular scam. There also appears to be nothing to deal with the many hidden clauses and charges in leases that come to light only when someone wants to build an extension or even ask a question of their freeholder. Does the Minister agree that charging £108 to ask a freeholder a question is indefensible? What is he going to do to bring relief to those lumbered with such fees?
I hope the Minister will be able to tell us more about the likely timescale for discussions with the Law Commission on making the purchase of freeholds easier, faster and cheaper. He will know from the private Member’s Bill that I presented only last month that that is exactly the system we want to see introduced. I hope he will meet with me and other Members of the all-party group to discuss how we can bring the matter to a swift conclusion. As we have heard from Members today, people desperately want a solution. There is a constant stream of cases, bringing different arguments to the property tribunal about the fees and costs for lease extensions and purchases. Wealthy landlords are refining their arguments in every single case to maximise their income, and they inflict further pain on the leaseholder by making them pay for the privilege of having their case tested in the courts. Action cannot come soon enough to end that racket upon a racket.
Only this week I have had two examples from my own constituency of how the current system is not fit for purpose. The first involves Redrow, which is building a lot of properties in my constituency at the moment, mainly three and four-bedroom detached properties, which, for reasons I have never understood, are sold on a leasehold basis. As the Prime Minister has said, there is no good reason for such houses to be sold on that basis, and it appears that even in this case the developers cannot come up with one either. Possibly in anticipation of today’s announcement, Redrow has said that future stages of the development will be sold on a freehold basis, which is good news, but of course leaves the question of what to do with the existing properties. As we have heard from other Members today, that creates concern about the future saleability of those properties. I understand that Redrow has agreed to sell the freeholds directly to the leaseholders at a cost of 26 times the ground rent. No explanation has been put forward as to why that figure has been arrived at, but it works out at around £6,000 per property, which is money that not everyone can easily lay their hands on. If everyone does purchase the freehold, it will lead to Redrow pocketing a cool half a million pounds for doing absolutely nothing at all, which highlights perfectly the parasitic nature of leasehold.
Another example highlights a scandal that we need to return to in the future: the practice of spurious service charges. I was contacted the other day by a constituent who received a bill from a management company in charge of a block of four flats in Ellesmere Port. There are no significant common parts, so the service charge has usually been around £50 a year. All of a sudden, with three weeks’ notice, the leaseholders have been asked to find £911 by the managing agents, Compton property management. We have a breakdown of charges, although that raises more questions than answers.
One of my constituents tells me that the only common part is a stairwell that is not cleaned and there are no communal electricity charges, but those are being levied on him, along with grounds maintenance and repairs fees, which again appear to relate to services that are not delivered. As a final insult, there is a separate invoice for landlord building insurance, which is described as a service charge and insurance contribution, and it is payable to a company called Compton Insurance Services Ltd. It appears it has not heard of compare the market; more like corner the market.
Some developers, in recognition of the toxic nature of some of the terms attached to their leases, have introduced a scheme whereby the doubling of ground rents can be converted to the retail prices index at the developer’s expense. Taylor Wimpey has led the way in that, but has not been quite as gallant as would at first appear. Not only do other onerous covenants and charges remain in the leases after conversion to RPI, but the leaseholders are required to sign an agreement saying that the arrangement is in full and final settlement of any claims they may have arising from the lease. Why is that insisted on, if nothing has been done wrong in the first place?
Serious questions need to be asked about how the freeholds are passed around from one company to another, sometimes outside this country in tax havens, with secrecy about the ultimate recipients of the substantial income coming from the leases. It cannot be right that in the 21st century the biggest purchase that most people will make in their lives is in the hands of unaccountable, uncontactable modern day lords of the manor who just see people’s homes as an entry on a spreadsheet.
It is clear to me from talking to the many people affected by the scandal that when they bought their houses they thought they were doing just that: buying their home. They never contemplated for a moment the possibility that the true owner of their home would be someone whose identity they might never know, who could sell on their interest in the property to someone else, without their knowledge or consent, and that they would be lumbered with fees and charges that would make the likes of Arthur Daley blush. Let us reform the rotten system without further delay, but let us also get answers. Developers need to explain before a Select Committee how the duping of their customers was allowed to start in the first place, how much profit they have made out of this scam, who conceived of leases that now nobody will sign up to, how many properties were made leasehold needlessly, what role lenders and solicitors had in getting leases passed that nobody would touch with a bargepole now, and who exactly are the beneficiaries of the leases now. Until we know the answers to all these questions, we cannot be sure that another abomination of this nature will not happen again.
I pay tribute to hon. Members who are present for the debate, and in particular the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friends the Members for Poplar and Limehouse (Jim Fitzpatrick) and for Ellesmere Port and Neston (Justin Madders). Those longer-standing Members have done much groundwork on the issue.
I come to the matter we are debating as a new MP, elected in June; it was one of the first issues that I encountered in my surgeries. It was the one on which the most people expressed concern. They were people who had recently bought new-build properties; having been told that they would be able to buy the freehold in two years and that that would not be a problem, they had since been informed that it would cost at least twice, and sometimes three times, what they were first told. They felt, as many Members have said in the debate, ripped off. Many are first-time buyers, who had been renting a home for years and saved up every last scrap so that they could afford a deposit to buy a house and feel that they were not being ripped off any more; however, when they purchase a leasehold home they still feel that they are under the cosh and do not have control of their home or the fees charged on it.
I welcome the response to the consultation, which the Government issued today. I thank the Ministers concerned. I am particularly pleased about what it says about ending the sale of houses on leasehold as soon as possible. That is important in areas such as mine, where there is a range of homes for sale, either on leasehold or freehold, and people who want to buy a home are confused about what they should do. Often they find, on approaching a sales team, that the team will try their best to sell the property on leasehold, and that only if they persistently refuse will buyers, in some cases, be offered the freehold. However, hundreds of people have already purchased homes without being aware of that, and others were not allowed to buy the freehold even if they pushed to do so. They now feel that their situation is difficult.
I am concerned that the consultation response says that, where land is currently under a leasehold that is being developed, the sale of leasehold homes will still be permitted. I hope that the Government will look at that, because there are many instances in which developers buy rights to develop on certain land, and that can be deemed a leasehold in kind. There are not many estates in my area where that has not happened; so I hope that the Government will look seriously at what constitutes a lease and make sure that that is not a loophole for developers to get round, although I recognise that they say they will make sure that no new leasehold is occurring on land.
My major concern is the existing leaseholders, who are in a poor predicament having saved up and put all their savings, and now their income, into their mortgages. They face charges that they were not aware of, as well as a disproportionate escalation in fees for buying the freehold. I echo what my hon. Friend the Member for Ellesmere Port and Neston said about sharp selling practices and thank him for the work that he has done to expose what happens when, if solicitors are not quite being forced on buyers, certainly, in my constituency, buyers have been told that the solicitor recommended by the developer is the only one who can manage the Help to Buy system in the east midlands and manage a sale quickly enough for buyers to keep the incentives of carpets and kitchens. People really feel they have been led up the garden path. I hope that the Government will make proposals on that as soon as possible.
I welcome the consultation response about making sure that there is a set formula for buying freeholds by summer 2018, with legislation as soon as can be arranged. However, there are people now in the predicament that they bought a leasehold home and, for various reasons, need to sell it. Some may need to move to assist elderly relatives who need care, or to follow career prospects. Will the Minister consider the possibility mentioned by the hon. Member for Worthing West of reforming the system by which at the first tier tribunal the leaseholder must meet their own legal costs and those of the freeholder? That is used to rip off leaseholders; freeholders instruct Queen’s counsel and rack up the legal charges. I hope that such a reform might be a short, quick-fix solution that would help people who are now in a predicament.
I welcome what has been said in the debate and the response to the consultation, and hope that Members on both sides can work together to make it a happier new year for leaseholders in all our constituencies.
It is a pleasure to serve under your chairmanship, Mr Bone. I want to add to the praise that has been heaped on the hon. Member for Worthing West (Sir Peter Bottomley), my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick), Leasehold Knowledge Partnership and everyone involved in the all-party group. As we have seen, the debate encompasses an extremely wide range of issues—not least the scandal that so many of my hon. Friends have spoken so passionately about. There are many issues that affect my constituents, from the need for greater transparency about service charges to the huge problems many leaseholders face when trying to rectify damage caused by accidents such as flooding—which might be thought a relatively simple thing.
Today I want to focus on just one pressing issue that is of great concern to hundreds of my constituents—and, in doing so, build on the comments of my constituency neighbour, my hon. Friend the Member for Poplar and Limehouse, and my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury). The issue is liability for the costs associated with interim safety measures and remedial fire safety works on private freehold developments. In the wake of June’s horrific Grenfell Tower inferno, three private freehold developments in my constituency failed cladding tests arranged through the Department—the Babbage Point development on Norman Road and two blocks on the New Capital Quay development, all in west Greenwich. I shall run through the latter case in a little detail, to show a wider problem.
New Capital Quay is a new-build development that was completed in 2013-14. It comprises a total of 980 mixed- tenure homes, 658 of which are private. The freeholder is Roamquest Ltd, but the immediate parent company is Galliard Holdings Ltd, and the ultimate holding company is Galliard Group Ltd, so despite the somewhat opaque nature of the ownership structure it is a Galliard development, as both the company structures and all the publicity around it indicate.
In the immediate aftermath of Grenfell, a 24/7 waking watch fire marshal patrol was instituted across the whole development on the basis of consultation with and guidance from the London fire brigade, and in September a notice of deficiency was issued. Although I have no accurate figures for the total cost associated with both measures, I estimate that it is likely to run into the hundreds of thousands, if not ultimately millions, of pounds.
Residential leaseholders and shared owners on the development, scores of whom have contacted me over recent months, are extremely concerned that Galliard will simply pass those costs on to them, and they have good reason to be worried. With a normal leasehold flat or house, leaseholders are required to pay for the repairs that the lease says they are responsible for, and the freeholder is responsible for structural repairs, but the ACM cladding is not actually in need of repair; it is just incredibly dangerous. There is therefore every reason to believe that its replacement on private freehold developments will be categorised not as a repair but as an improvement or a renewal. That is the position that Galliard has adopted. By happy coincidence, it replied yesterday through its legal representatives to my representations on behalf of residents, which I submitted some time ago.
I am not a lawyer, but I think it is plain as day that, given the unique circumstances post-Grenfell, there is going to be legal complexity surrounding the recovery of costs associated with the interim safety measures and any long-term remedial works on those developments. In each case, it will clearly depend on the lease in question. I think that, in many cases, freeholders will simply attempt to recover the costs from leaseholders. Where they cannot, they will find ways of avoiding paying the costs entirely—for example, by creating a dormant company with no assets and then simply throwing up their hands, as happened in Slough.
As my hon. Friend the Member for Brentford and Isleworth mentioned, some freeholders, to their credit, are shouldering the costs of the post-Grenfell remedial fire safety works themselves as a gesture of goodwill, but as she rightly said, that is the exception, not the rule. I suspect that most will not follow Legal & General’s lead, despite the Government’s urging that they do so. Although that is disappointing, it is entirely unsurprising, because Legal & General’s action is voluntary. Why would any developer or private landlord voluntarily give leaseholders a gift—from their point of view—or cover their costs if they are in a position to evade that responsibility? In the case of New Capital Quay, Galliard maintains that it was fully compliant with the building regulations at the time the development was completed, that the construction was signed off by an approved inspector, and that, as such, it should not be liable for the fact that it is now not compliant. The whole situation is a complete and utter mess.
The important point at a human level is that the cost of the works resulting from what has emerged in the wake of Grenfell, which could run into tens of thousands of pounds for each individual leaseholder, cannot justifiably be recovered from them. The 658 leaseholders and scores of shared owners on New Capital Quay bought their properties in good faith and bear no responsibility whatever for failures in the building regulations regime, but as things stand they are going to be absolutely clobbered. Some are no doubt affluent enough to afford the costs that might come down the line, but many are not and will suffer real hardship as a result. In either case, it is neither fair nor reasonable. From what I have seen, there are no effective means of redress, either through claims to the National House Building Council or through the advice and support that LEASE is offering. This is a serious problem, and the Government have not yet grasped the extent of it. Ministers need to give it more consideration and thoughtful attention than they have given it so far. I look forward to hearing the Minister’s advice to my constituents who are affected and are extremely worried about what the future holds for them.
Does Mr Amesbury want to speak?
No, I withdraw.
For the benefit of the House, I have called all the Members who have given me notification that they want to speak. I will continue to call other Members, but it would be nice if we could start the winding-up speeches at 4 o’clock or earlier.
It is a pleasure to serve under your chairmanship, Mr Bone. I thank my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) and the hon. Member for Worthing West (Sir Peter Bottomley) for their work and leadership on this important issue.
Leaseholder reform is often overlooked when it comes to the housing crisis. The reality is that we must view leaseholder reform as part of, not separately from, how we address the injustices of that housing crisis. Leaseholders face a number of exploitative conditions that relate to the way in which housing is seen as an economic investment, not as about homes. That is particularly acute in London, where we have the highest number of leaseholder sales. In my constituency of Battersea, which has become something of a developer’s playground in recent years, 83% of all property sales in 2016 were leasehold. As more and more high-rise developments go up, it is crucial that we ensure leaseholders have rights and protections, and that legislation is implemented to stop such exploitation.
One key issue that hon. Members raised, which my constituents have written to me about, is ground rent. With more and more developers selling flats on a leasehold basis, there is an incentive to set ground rent at a higher level and to build hidden charges into leaseholds. Developers have admitted that the returns from selling on ground rents can be up to 35 times the annual ground rent value, and can be more than the amount normally charged to the purchaser of a new build house for the freehold interest at the point of sale.
There is no duty on the freeholder of a house to inform the leaseholder of a change in ownership. Nor does the leaseholder have a “right of first refusal” to buy the freehold interest at that point. One of my constituents’ ground rent will double every 15 years, which means that her property will become more and more expensive, and will be unsellable if she cannot afford the charges. Over time, the ground rent will rise to hundreds of thousands of pounds for a one-bedroom flat. My right hon. Friend the Member for Wentworth and Dearne (John Healey) rightly described this as legalised extortion in some of the worst cases. The Government must act to end this practice, and commit to help those already trapped in unfair and exploitative ground rent schemes. Nobody should be made homeless because of ground rent or trapped in a contract that means that they are unable to move on or afford to maintain the cost of their home.
Does my hon. Friend agree that the evidence presented today and presented to us by constituents points to the fact that people have been mis-sold products? As my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) rightly said, this is the new PPI scandal.
My hon. Friend makes a very important point. I agree.
It is important that we regulate the new lease models that developers are creating. Shared ownership tenants in the new blocks along the river in my constituency find that the service charges do not seem to match up with the proportion of the housing estate they occupy.
We cannot forget leaseholders on council estates. Any so-called regeneration scheme must give owner-occupier leaseholders the same value and agreement on their flats or a like-for-like buy-in. Council estate residents must not be forced out of their communities when demolitions take place. Another major fear that many council estate leaseholders in Battersea have is the cost of the retrofitting of sprinklers. After the tragedy of Grenfell, councils have rightly sought to ensure that old tower blocks that are more than 10 storeys high have the same safety regulations as new builds. However, the Government are refusing to fund those crucial safety measures. Councils such as Wandsworth are planning to charge leaseholders for the work, which means charges of up to £4,000. Leaseholders on one of my estates—the Surrey Lanes estate—already face charges of £9,500 for recent window works, and they will now be hit with an additional £4,000. There is often an assumption that leaseholders can afford that, but that is totally untrue and misunderstands the circumstances of many owner-occupiers on our council estates.
Cladding is another issue in Battersea. Castlemaine Tower was found to have the dangerous cladding similar to that on Grenfell, and the council are paying to have it removed. In private blocks with that cladding, however, the private freeholder and/or landlord is likely to pass on the huge sums in charges to the leaseholders. I ask the Minister, what plans are the Government making with regards to safety works in the private-rented sector, in particular post-Grenfell, to ensure that leaseholders are not held to ransom by freeholders?
Finally, it is great to see that leaseholder reform is getting a higher profile, and that the work of the APPG is starting to have an effect on Government. As we become a more urban nation, more and more people will be living in apartments and high-rises, so it is crucial that we get things right.
My final, final point, Mr Bone, is to thank you and all hon. Members present, as well as all the parliamentary staff. I wish everyone a very merry Christmas.
Last but—least as well! It is a pleasure to serve last under your chairmanship, Mr Bone.
The hon. Member for Worthing West (Sir Peter Bottomley) asked not to be thanked, but I do thank him for securing the debate, and I also thank my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick). I have always found the all-party parliamentary group to be a great help when I have tried to pursue the various leasehold issues that my constituents have raised with me.
Many of those issues have already been raised by colleagues. The advantage of speaking late in the debate is that I will not need to rehearse them further. Unforeseen service charges, ground rents increased and even doubled, leaseholders unable to make modifications or sell their homes—the common factor in such problems is the state of confusion, chaos and inconsistency in which the law leaves leaseholders.
In my constituency, residents at The Rise, a development in the west end of Newcastle, have struggled to receive firm or consistent information about how they may purchase the freeholds of their homes. The cost, timeframe and process for doing so is not standardised and is left entirely at the whim of the freeholder. As in similar stories we have already heard, that has caused considerable anxiety, which I am sure everyone in the Chamber recognises.
The area on which I wish to focus has not been mentioned, though it was alluded to by the hon. Member for Worthing West—it is what we should call the charity loophole. I have raised the subject in an Adjournment debate, but the situation is so grotesque that I feel it is incumbent on me to set it out again in this debate. The charity loophole under the 1967 housing legislation is causing huge financial and emotional distress for many of my constituents who own leasehold property in the St Thomas area of Newcastle. They have worked all their lives, invested in property, as they have been encouraged to do, and now face their greatest asset becoming their greatest liability.
I should declare an interest. The landlord of my constituency home in Newcastle, which is funded by the taxpayer, is potentially affected by the situation I am about to outline. Howard Philips and Phyll Buchanan purchased their leasehold house on the open market in 1998. No caveats were raised by the conveyancing solicitors at the time or by the solicitors who handled their remortgage in 2003. They are now in their late 70s and feel that the time has come to move on:
“The house is not suitable for our old age. The cost of maintaining these Victorian Grade II listed houses is substantial and will be a burden for the remaining years on the lease. We cannot easily manage the six flights of stairs or afford to maintain the property”.
I should add that the houses are beautiful and in one of the most desirable areas of Newcastle. They cannot downsize, however, because they cannot sell their property. Their lease has less than 70 years remaining and no mortgage company would advance a loan unless the lease was extended. They cannot extend their lease because the charity that owns the freehold, the St Mary Magdalene and Holy Jesus Trust, refuses to do so.
The trust was formed for the benefit of the freemen of Newcastle, their wives and children, and is now a considerable property owner in Newcastle. It owns the freehold of the St Thomas area of Newcastle as well as numerous properties in that and other areas of the city. There is also an intermediate lessee and managing agent, Home Group, which is a housing association. In refusing to extend the leasehold, the trust is causing misery to leaseholders and forcing some into financial distress. For example, Michael Armstrong said:
“We are a low income family with three children and had planned to pay off our mortgage by selling the house and downsizing once our children had grown up and left the family home.
Due to the fact that we cannot extend our leasehold, or buy the freehold from MMT, we are basically trapped in a very worrying and insecure situation and face the real possibility of losing our family home.”
As time is short, I will not discuss all the many different examples, but I will touch on the complex combination of circumstances that has caused the situation. The specific legal issues relate to the 1967 legislation as modified by section 172 of the Housing Act 1985, which states that if a charity owns a freehold, it is not obliged to sell or extend the lease of houses on its land.
My constituents cannot extend their lease and they cannot buy the freehold. In Mr Philips’s words,
“we are devastated to find that our house is unsalable and our nest-egg is worthless because the charity”—
this is a charity, a benevolent charity—
“that owns the freehold is refusing to extend our lease.”
As we know, under this Government social housing tenants have a right to buy after only two years, but my constituents are not even allowed to extend their lease. How can that be acceptable? As Mr Philips says:
“Every day we have to face this nightmare and it is taking a toll on our health.”
Some might argue that the houses should never have been sold to their tenants, given the complexities of the charitable leasehold system and the need for social housing in Newcastle and elsewhere, but the houses were sold and bought—what faces us now is an issue of social justice. The life’s work of those people is tied up in their property, and control of it is being withheld from them by impersonal, bureaucratic forces beyond their control.
Since the Adjournment debate there has been some progress. The Minister has offered to meet me and, as we have heard, today the Secretary of State for Communities and Local Government announced measures to curb abuse of leasehold. That is welcome and a relief to my constituents. Phyll told me today that her first reaction to the Government’s proposals was
“relief that an end to our nightmare might be in sight”.
She also requests that the Minister
“finds solutions to help those of us currently trapped in unsellable homes”,
“a transparent and affordable way of buying our freeholds”.
That is a wish that many in the Chamber would echo.
Listening to the debate, I found it hard to believe that we are in the United Kingdom in 2017 and yet have such confusion about property rights in property. This morning during Digital, Culture, Media and Sport questions I raised the issue of property rights in data, such as the data Facebook shares, uses and takes from us. That is confusing, but property rights in property—in a property-owning democracy with a well-established legal system—should not be. One would hope that property rights in property were clear for my constituents at least, so that they did not have to spend their time worrying about how or whether they will be able to remain in their home.
I look forward to the Minister’s response. I would be grateful if he reaffirmed that the charity loophole is in the scope of the Government’s reforms and will not be left for the Law Commission’s review of leasehold law. I wish him, everyone else present and everyone in the House a very merry Christmas. Can he offer my constituents some Christmas relief so that they can enjoy their turkey or whatever in their homes, content that they will be able to realise the benefits of their property?
I was delighted that Sir David was in the Chair at the start of the debate—he has a particular personal interest in many of these issues because he chairs the all-party fire safety rescue group—but I was even more pleased to see him hand on the baton for the final lap to you, Mr Bone. We are all grateful to you.
This may be one of the final events this parliamentary term, but I have found it one of the most encouraging. The Government’s announcement is certainly welcome as far as it goes, but as the Minister has heard from every contribution, they need to go further. In many ways, I see the debate as a reflection of Parliament and Ministers coming to terms with the first minority Government for 38 years. I see it as a reflection of the Government recognising that they do not have a domestic policy programme, because it is not covered by their deal with the Democratic Unionist party. I also see it as a reflection of the Prime Minister admitting that policy and market failures in housing over the past seven years were a big part of why her party did so badly at the last election.
Importantly, the debate has shown that Parliament now has a bigger influence on Government decisions and policy than it did at the beginning of 1997—sorry, 1917. [Interruption.] Sorry—it really is getting too close to Christmas to make much sense. Parliament now has much greater influence over Government decisions and policy than it did at the beginning of this year, especially when there is cross-party concern or agreement about what needs to be done.
There are three factors behind the strength of the speeches we have heard and the strong momentum for substantial leasehold reform. The first is the all-party group on leasehold and commonhold reform. I cannot pay strong enough tribute to the combined work of the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick). They were pursuing these issues when they were not popular issues and when the all-party group did not have 130 members, as it does now. It is one of the largest and most active groups in Parliament, as the hon. Gentleman said, and it is reinforced by outstanding individual campaigns, not least by my hon. Friends the Members for Ellesmere Port and Neston (Justin Madders) and for High Peak (Ruth George).
I like to think that Labour Front Benchers have done their bit, too, in the past couple of years. We went into the election in June with a commitment to legislate for a cap on the ground rent that leaseholders pay, to ban the use of leasehold for new homes as a matter of course, and to carry out an urgent review to try to ensure that we could deal with many of the problems for existing leaseholders that we have heard about. I say to my hon. Friends that, to some extent, this is unfinished business for Labour. We introduced the Commonhold and Leasehold Reform Act 2002 because we wanted to end leasehold for good and provide commonhold as an alternative. That did not work in that decade; we must ensure that it works in this decade.
The second factor is the fact that the industry has stepped up its use of leasehold for newly built homes. The Secretary of State says in his written statement that the proportion of new homes built on a leasehold basis has more than doubled in the past 20 years. He puts the figure at around one in six, although many experts—not least the Leasehold Knowledge Partnership—put it a great deal higher, and Members suggested that that is particularly the case in the north-west. In any event, the Leasehold Knowledge Partnership confirms that at least 260,000 new homes have been built on a leasehold basis since 2010.
The third factor is that greed has clearly got the better of many of the people involved in these arrangements. My right hon. Friend the Member for Delyn (David Hanson) said that he sometimes feels that this debate takes place in an echo chamber. We all have constituents who have been ripped off—fleeced—by such leasehold arrangements. In my area, there are regular reports about people who bought their homes on new developments using the solicitor that the builders put great pressure on them to use, who claim and feel that they never realised that they were buying on a leasehold basis, who were not made aware when the freehold was sold on, and who do not know who their ultimate landlord is or how to contact them. A change in the freeholder’s management company often leads to price hikes. People have been billed four times a year instead of twice, charged £9 for every letter, and charged an administration fee when they have rung up to ask for information or an analysis of the cost of purchasing the freehold.
Developers have rightly got a hammering this afternoon, but notwithstanding that, does my right hon. Friend accept that there are abuses in the social sector too? Some councils and housing associations used service charges and refurbishment charges as a blank cheque. The Government had to bring in a cap because that was getting out of control. It is not just the private sector that needs to be reformed; the social sector does too.
That certainly applies in some cases and it is a good point, but it remains the case that the worst examples that have been cited in the debate resulted from big developers’ greed. For some developers, leasehold has become a golden cash cow. For many freeholders, it has become a licence to print money. We have found that freeholders have often moved offshore, beyond the reach of any tax system that the UK can bring to bear.
The sale of homes on a leasehold basis may well have started in the north-west, as the hon. Member for Worthing West indicated, but it is clear that the practice has spread widely across the country. Members from the north-west are strongly represented in the Chamber, but we have also heard from Members from the south-east, the south-west, Yorkshire, London, the north-east, the east midlands and even north Wales. [Interruption.] North Wales rather than the north-west, despite the proximity of the national boundary.
As I said, the Secretary of State’s statement is welcome as far as it goes, but I would like to tempt the Minister to go a little further. The Secretary of State published a summary of consultation responses alongside his press release and written statement, but we have not yet had the Government’s policy response to the consultation. When can we expect that? He plans to introduce
“legislation to prohibit the development of new build leasehold houses”.
When will we get that? He plans to restrict the
“ground rents in newly established leases of houses and flats to a peppercorn”
level. How will he do that, and when? He talks about
“addressing loopholes in the law to improve transparency and fairness”.
What loopholes, and when?
The Secretary of State is also asking big developers to stop using Help to Buy to purchase leasehold homes and encouraging them
“to take early steps to limit ground rents”
and to provide a redress scheme for people who are badly affected. What commitment has he got from the big developers to taking those steps, and when will other big developers follow the lead that Taylor Wimpey took on many of these fronts in the summer? As my hon. Friend the Member for Poplar and Limehouse said, the key point is that 5 million current leaseholders will not be covered by future legislation, so what specifically does the Minister plan to do to help those who are trapped in legal leasehold terms, which range from unfair to a total rip-off?
It is a rotten system, as my hon. Friend the Member for Ellesmere Port and Neston said. The written ministerial statement says that the Government will be working with the Law Commission on existing leaseholders. Although I welcome last week’s announcement by the Law Commission that the unfair terms of residential leasehold will be one of its areas of review, it is one among 14, in what is the 13th programme of law reform. To quote what the commission said in announcing it:
“This is a substantial body of law reform work on which the Commission hopes to start work over the next three years…As such, inclusion in the 13th Programme is not a guarantee that the Commission will be able to take forward work immediately across all areas.”
Will the Government help to fund the work that the Law Commission needs to do? Will they, with the Law Commission, be early in setting a firm timetable for the work to be completed? My fear is that we will not see legislation via this route this side of a general election.
I cannot let the debate pass without making some observations on the remarks of my hon. Friends the Members for Poplar and Limehouse, for Brentford and Isleworth (Ruth Cadbury), for Battersea (Marsha De Cordova) and for Greenwich and Woolwich (Matthew Pennycook) about concerns in this area post the terrible tragedy of Grenfell Tower. The consequences of Grenfell for residents and owners in other high-rise residential tower blocks are becoming clearer, and the wider weaknesses in the leasehold system are thrown into sharp and urgent relief by the challenges that come from Grenfell: the immediate fire safety measures that need to be put in place, the substantial remedial work required in many cases, and the question of who really is responsible and who really should be paying for that.
There is also the question of whether some freeholders will abuse or misuse the first-tier tribunal system to try to proof themselves against any challenge for passing on these very heavy costs to leaseholders. There is a concern among some social landlords that such practices will be followed and certainly a concern about privately-owned residential blocks.
The Grenfell Tower fire was a national disaster. People expect national leadership and a national response from Government. It exposed—we had only really had warnings from coroners’ reports on earlier fatal fires—the complete collapse of the national system of building control and regulation. Therefore, the national Government must take some responsibility by putting in place measures immediately to ensure that it does not happen again.
If the Government were willing, for instance, to reconsider their point-blank refusal to help fund some of the costs that social landlords face in completing essential remedial fire safety work, they could make it a condition of any funding help they give that leaseholders are protected from bearing any of that cost. They could consider, for instance, a Government-backed loans scheme for private landlords who genuinely struggle to cover the costs themselves. The Government could also consider a similar condition that might help to address the concerns the Minister has heard from some of my hon. Friends about the position of leaseholders in private high-rise blocks. In any case, I ask the Minister to reflect carefully on the points that have emerged in the debate, linked to the work required after Grenfell Tower, and early in the new year to make a clear statement on what the Government will do to try to deal with the concerns for leaseholders with both private landlords and social landlords.
I end where the hon. Member for Worthing West ended. He rightly said that, together, the Government, Parliament and outside experts can at this point make some really important changes for the good, for the future. He made a particular proposal to the Minister, which I think has backing from everyone in the Chamber. Will the Minister undertake to consider having a debate on these concerns in Government time in the Chamber in the new year? As the hon. Gentleman said, that would be a very useful next step, especially if it were not left until the last day of the parliamentary term, just before Easter.
It is an absolute pleasure to serve under your chairmanship, Mr Bone. I congratulate my hon. Friend the Member for Worthing West (Sir Peter Bottomley) on securing this incredibly important debate on leasehold. As Members have made clear, he—along with the hon. Members for Poplar and Limehouse (Jim Fitzpatrick) and Ellesmere Port and Neston (Justin Madders) and other members of the all-party parliamentary group on leasehold and commonhold reform—has demonstrated real dedication to championing leasehold reform.
We have had incredibly thoughtful contributions today. This is Parliament at its best, where we all come together and speak with one voice. We have had humour in the debate, but it has underlined a serious issue that colleagues care deeply about, and we know that our constituents care about it as well.
To respond to the right hon. Member for Wentworth and Dearne (John Healey), in terms of the broken housing market, I hope we all acknowledge that the reason we are where we are is because successive Governments over many decades have not presided over the building of enough homes. In terms of leasehold, successive Governments have left the business unfinished. I absolutely get that what the House wants from this Government is to finish that piece of business.
I have attended and spoken to a packed meeting of the all-party group and heard at first hand the anguish of some of those affected by the leasehold issues we are discussing. Indeed, many Members have highlighted individual cases from their constituencies. I am also grateful for the welcome from right hon. and hon. Members for this morning’s written ministerial statement to the House from my right hon. Friend the Secretary of State for Communities and Local Government. As has been said, today we have also responded to the consultation on leasehold held earlier this year. My remarks will very much echo the Secretary of State’s statement.
A number of colleagues noted this, but in February the Government’s housing White Paper, “Fixing our broken housing market,” set out our commitment to promoting fairness and transparency for the growing number of leaseholders. I do not want to rehearse the whole issue around leaseholders and the number of people affected—we know that a lot of people have leasehold homes.
Of course, ground rents on many such properties have risen from historically small sums to hundreds of pounds a year. As colleagues have pointed out, in some cases ground rents have spiralled into significant sums. That is why the Government acted and published a consultation over the summer. I am grateful to everyone who participated and provided evidence—particularly Members of the House and of course the all-party group. The consultation received an overwhelming response: there were more than 6,000 replies, and the vast majority were in favour of widespread leasehold reform.
I repeat the point made by the right hon. Member for Delyn (David Hanson) about being in an echo chamber when we have talked about the issues affecting constituents. It is clear that many purchasers did not make an informed choice to buy a leasehold house. Far too many reported being surprised to find that their home had been sold on to a third-party investor, and the cost of buying the freehold had risen considerably—as we have heard, sometimes running into tens of thousands of pounds.
Is that not a prima facie case of mis-selling?
I will come on to talk about the work that the Government will be doing with the Law Commission.
We have also heard of consumers with very onerous ground rent terms who are effectively trapped in their own homes, unable to find a buyer. Some of those people have not been able to get redress and do not know where to turn for support. It is clear that the leasehold system as it stands is not working in many consumers’ best interests. Even most developers accept that use of leasehold for new build houses, unless in exceptional circumstances, is entirely unjustified. This has got to stop. That is what we all want.
The Secretary of State’s statement noted that, alongside publishing a response to the consultation, the Government have set out a package of measures to crack down on unfair practices, which includes introducing legislation to prohibit the development of new build leasehold houses, other than in exceptional circumstances. The Government intend to ensure that future legislation to ban the sale of leasehold houses applies to land that is not subject to an existing lease from today’s date. We will continue to work with the sector and other partners to consider the case for exemptions to the policy and its retrospective application, in particular to mitigate any undue unfairness.
We are restricting ground rents in new leases of houses and flats to a peppercorn, and we are addressing loopholes in the law—for example, to ensure that freeholders have a right to challenge unfair service charges. We are also working with the Law Commission to support existing leaseholders, including by making the purchase of a freehold or extension of a lease easier, faster, fairer and cheaper and, of course, by reinvigorating commonhold.
The right hon. Member for Wentworth and Dearne and the hon. Member for Brentford and Isleworth (Ruth Cadbury) raised the issue of the Law Commission. I can confirm that the Government will be funding the work. We will be funding five lawyers and five research assistants, a proportion of the managers’ and the commissioners’ time and some peer review and external consultancy. That work will start in January.
I am grateful to the Minister for giving us that answer. I think everyone will be encouraged and will welcome that. He indicates that work will begin in January 2018. Can he indicate when that work is scheduled to be completed?
If the right hon. Gentleman bears with me, I will come on to that.
As I said, we will be working with the Law Commission. A number of Members raised the issue of freeholds being sold on to investment companies. Our view is very clear: where houses are sold on unfair terms, we have asked developers to be proactive and arrange for the leasehold contract to be put on a fair footing. The right hon. Member for Knowsley (Mr Howarth), who is not in his place, asked whether there should be a requirement for developers not to sell on the freehold at this point. I am sure that developers will be listening intently to the tone of this debate and understanding precisely how Parliament feels about this matter.
We will, of course, want to ensure that there is appropriate support for existing leaseholders with onerous ground rents, and we will work with the ombudsman and trading standards to provide comprehensive information on the various routes to redress. However, that is not enough. We also want to see developers and investors going further with their compensation schemes. I want to see that support extended to all those with onerous ground rents, including second-hand buyers.
A number of Members, including the hon. Member for North Tyneside (Mary Glindon), mentioned Help to Buy. Given the Government’s position on leasehold, we do not think it is appropriate for the Help to Buy equity loan scheme to support the sale of leasehold houses. We cannot impose a new requirement on developers under existing contracts, but we expect them to work with us to take forward that change ahead of legislation. The Secretary of State has today written to all developers to ask them to stop using Help to Buy equity loans for the purchase of leasehold houses, to encourage them to take early steps to limit ground rents and to ask those that have customers with onerous ground rents to provide the necessary redress as soon as possible. Both the Secretary of State and I will be keeping a very close eye on progress in that area.
I am very grateful to the hon. Member for Ellesmere Port and Neston for proposing a Bill on leasehold reform, and for the considerable efforts that he and other colleagues have made to put it on the agenda. This is a highly complex area, covering multiple Acts of Parliament, which is why we will be working closely with the Law Commission as part of its 13th programme of law reform, announced last week. We want to ensure that we prioritise making the process of buying a freehold easier, and to support existing leasehold house owners, and we will seek to bring forward solutions by the summer recess of 2018.
Will the Minister to clarify whether the proposals that will be brought forward by the summer will address the charity loophole?
As the hon. Lady knows, we are meeting in the new year to discuss the issue of the charity loophole and specifically her case. My officials are in touch with the charity, and I would be very happy at that point to discuss the details. Of course, if she wants to feed some suggestions into the work that we are doing more widely with the Law Commission, I would be very happy to receive them from her.
I suggest that either the Minister or his officials should have a round table with the charities, the National Trust and the Charity Commission, and spell out to those people that, although the law at present may give them the right to say no, they ought to ask whether it fits with their charitable purposes to do so. Perhaps they ought to say yes, because charities are supposed to do good for people.
My hon. Friend makes an interesting suggestion. I will take that away and come back to him.
Certainly, in bringing forward legislation we will continue to work with stakeholders, including the APPG, to ensure the best outcomes for consumers. We have heard many ideas in this debate. We want to ensure that our plans do not have an adverse impact on supply, and we will work with the sector to consider the case for exemptions.
It is important that we get the detail right. We are committed to ensuring that our reforms deliver a fairer and more transparent system for both existing and future leaseholders, and to stamping out the leasehold abuses that have existed to date. I have written formally today to the hon. Member for Ellesmere Port and Neston to confirm that I welcome the opportunity to meet him early in the new year to discuss further his thoughts for a Bill. I am open to a dialogue with the APPG about our thoughts as we move forward.
A number of colleagues have talked about building regulations. As we know, on Monday Dame Judith Hackitt published her interim independent review of building regulations and fire safety. It is important that leaseholders have access to specialist advice to understand their rights. The hon. Member for Poplar and Limehouse, the hon. Member for Brentford and Isleworth and my hon. Friend the Member for Worthing West mentioned LEASE; we can confirm that the Secretary of State announced on 4 December that the Department for Communities and Local Government is providing additional funding to the Leasehold Advisory Service over 2017-18 and 2018-19 to provide a dedicated advice and dispute resolution service for those leaseholders affected. I can also confirm that we will conduct an internal review of the wider landscape of support and advice to leaseholders, to ensure it is fit for purpose in the new legislative and regulatory environment.
To cover a few other points that were raised, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), the hon. Member for Battersea (Marsha De Cordova), the hon. Member for Poplar and Limehouse, the hon. Member for Brentford and Isleworth and, of course, the shadow Minister raised the issue of costs related to cladding. The Secretary of State has said that local authorities and housing associations with which we are engaging are not passing on the costs of essential works. He has also encouraged private sector freeholders to follow suit, and some have. I spoke to L&G, the company mentioned by the hon. Member for Brentford and Isleworth, and I am delighted with the approach it is taking. I realise there are some instances where costs are being passed on. That is why we are providing additional funding to LEASE, as I have just mentioned, to provide leaseholders with the advice and support they need.
Colleagues have raised a number of issues. The right hon. Member for Delyn asked about homes built in Wales by companies that are not from Wales. Of course, whether Wales abolishes leasehold is a devolved matter. However, I can confirm that my officials have been working with the Welsh Assembly to inform them of our plans on leasehold, and we will continue to liaise with them.
My hon. Friend the Member for Worthing West talked about forfeiture. I can confirm that that is being considered by the Ministry of Justice. There are protections in place, but I agree that reform is needed. We will continue to work with the Ministry of Justice to take this matter forward. I also noted his point about the National Trust, but as he knows, National Trust properties are exempt from enfranchisement under the Leasehold Reform Act 1967.
If I understood him correctly, the hon. Member for Witney (Robert Courts) asked whether we were looking to abolish leasehold. Leasehold needs reform, and although in certain cases it is an established structure that can work well, we want to make sure that there is fairness in the way that the system operates.
The Minister has not addressed the point that I raised. I wrote to him several weeks ago about my constituents receiving unreasonable demands from the landlord for payments for historical alterations. I would appreciate it if he would commit to answering that letter.
Let me apologise to the hon. Lady if we have not been answering our letters in a timely fashion. I will make sure that that letter is answered as a matter of urgency. She is absolutely right. She raised the issue about limited ground rents and the impact on leaseholders. As I said earlier, we have asked developers to contact homeowners regarding unfair terms. We will keep a close eye on that, and I will respond more fully to her.
I hope colleagues feel that we are making progress, and that we understand there is more to do on this. We said earlier this year that we would act, and I believe that we have done that so far. We are resolved to reforming leasehold, and ultimately to promoting fairness in the system.
I am grateful to you for chairing the debate, Mr Bone. We all thank the Minister, not only because he has responded to many of the points made today, but because he has been one of the people responsible for carrying forward the work and initiative of his predecessor, Gavin Barwell. When Gavin Barwell spoke at the LEASE conference a year ago, he shocked people by telling the truth: LEASE should be there for leaseholders and nobody else; that we should be unequivocally on the side of the ordinary person; and that those looking for good, fast-buck investments in the leasehold field better start thinking of something different.
On the Minister’s point about the National Trust, although it may have an exemption, as our right hon. Friend the Member for East Devon (Sir Hugo Swire) has said, why should it choose to use it? Is that right, fair or necessary? The same applies to charities in the north-east, too.
The debate was essentially about two points, and one was whether we can get commonhold to work. I have in my hand a paper from the 11 September meeting of the all-party parliamentary group on leasehold and commonhold reform by Philip Rainey QC, who talks about the necessary reforms needed to launch a commonhold mark 2. He talks of how to level the playing field by eliminating the comparative benefits of long leasehold and how the playing field can be tilted towards commonhold. He suggests some very simple incentives—one of which might be a change to the stamp duty land tax on development land, which would give a simple signal and would probably get people moving quite fast.
He also says there should be some kind of compulsion or sunset clause, some way of dealing with conversion and then a relaunch. I will not go into the rest of his paper, but it is available to the Department and it should be taken forward. Again, perhaps a roundtable on that, with experts brought in, would be useful.
A lot of professionals are involved in the leasehold field, and the regulatory system has failed. I apologise if I confused the wrongs of Dudley Joiner with the wrongs of Benjamin Mire in a previous debate, but Benjamin Mire was in the trade and held judicial office in the property tribunal. He was investigated by the Judicial Conduct Investigations Office, which was about to throw him out of that office, but he resigned just before it could. He had clearly committed an offence under the Royal Institute of Chartered Surveyors’ terms, yet clever lawyers, who delayed the case beyond the time limits, allowed him to get away scot-free.
Dudley Joiner, with this Right to Manage Federation, has, through various degrees of insolvency and poor advice to a number of leaseholders, managed to get leaseholders to lose lots of money. He is the sort of person who could resign from one of the regulatory bodies—it is not compulsory to be in them—and apply to join another. The same thing applied when the Tchenguiz interest owned Peverel, which was involved in several of the biggest leasehold scandals over the past 20 years. Peverel and its subsidiary, Cirrus, abused their position in blocks of leasehold flats, but they could actually apply not to be struck off by the Association of Retirement Housing Managers.
The same applies to Sally Keeble, who was formerly a Member of Parliament, and who resigned as regulator of the Association of Residential Managing Agents and gave five good reasons why voluntary regulation was not working—some were to do with clients’ funds and others to do with the powers that people should be carrying forward. We then come to the person we were told was appointed under the terms of the Nolan principles, Roger Southam, the present chairman of LEASE. I can send to the Minister privately the list of points, which I am sure his Department has already, of how Roger Southam used to advertise how he could help to get more money out of leaseholders. How can that sort of person, under the Nolan principles, be appointed to chair LEASE?
When people were appointing other members of LEASE, did they consult explicitly with the Leasehold Knowledge Partnership and its trustees—people who would not actually want to run LEASE themselves, although they provide equivalent services in some ways—on who they think would be a suitable appointment? It seems to me that one always needs to ask people in the field what their views are. That is only consultation, not necessarily giving them the power of decision, although some of the things they knew should certainly have been used as a veto against those making the appointments.
I could go further, but before we come to the end of the debate and the year let me list some points. We have heard a whole series of examples of leasehold abuses. On leasehold enfranchisement and the extension of leases, which brings us to the James Wyatt point through Parthenia and the issue of hedonic regression, I think the Government really have to get involved in that case. We should not let it be possible for the law to be set by judges, just because expensive barristers are clashing heads like a couple of bulls pushing against each other. We should actually ask what the public purpose, the public policy and the public interest of the law is and get directly involved.
I referred to commonhold and the ground rent issue, and we can certainly learn from the ground rent redemption issue in Northern Ireland, which I hope Ministers have looked at; from today’s announcement, it looks as though they have. I would spend more time on park homes if I could. However, it is worth mentioning, in case the Devon and Cornwall police is watching. Has it yet managed to find the 40-foot-long trailer stolen from Sonia McColl’s yard? She took up the issue of park home residents and, like Tony Turner, with his residents’ alliance, has been subject to incredible abuse. Of course, the biggest abuse is to have one’s home stolen, and hers has been.
I spoke about the regulation of managing agents. We have not fully dealt with the right to manage, but essentially, if any group of leaseholders asks for the right to manage, the presumption should be that they get it. They should not have to go through legal hoops and try to find every other leasehold owner to try to get permission. The presumption should be that, if they ask for it, they should have it. I am glad that the Law Commission programme has been referred to. Cladding has been covered by the hon. Member for Poplar and Limehouse.
This debate is only a stepping stone, but it is an important one. The people who deserve the credit are our constituents who raise the issues with us. We are only here to be the functionaries. We should be the people who turn their cases of injustice into a system in which it does not happen to more people in the future, and in which those who are already stuck in these terrible conditions have the chance of an easier life. Someone who has a home—whether a park home, a leasehold home or a freehold home, or if they are a tenant —deserves a fair life and to not spend time worrying about their money or their lives. I finish by wishing everyone a merry Christmas.
Question put and agreed to.
That this House has considered leasehold and commonhold reform and leasehold abuses.