Draft Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018 Draft Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2018

Debate between John Healey and Jim Fitzpatrick

Tuesday 12th June 2018 General Committees

[John Healey]

We do. I have been known to describe some parts of the private rented sector as the wild west, to pick up on her analogy. The draft regulations are narrow; they are a welcome but small step in a market that may leave the majority of renters satisfied at the moment, but that contains some significant rough or rogue practice. The measures will, in a small way, help to make the market fairer and better for landlords and tenants. One of the important secondary arguments in favour of these regulations is that they will clearly benefit landlords as well as tenants.

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

I want to reinforce the point just made by my hon. Friend the Member for Hornsey and Wood Green. It is good news that the Government are bringing forward the draft regulations. They are overdue. Good agents in the industry are given a bad name by the cowboys out there, and these measures will reinforce the efforts of local authorities that introduce licensing schemes to tidy up the whole sector.

[John Healey]

My hon. Friend is right. He knows—although I do not wish to try your patience, Mr Gray—that I am a strong advocate of licensing schemes for landlords, but those are for landlords and the measure we are discussing is for regulated property agents.

The real question is to what extent the draft regulations will work. Will the regulations do the job, and will they work well enough? I have a number of questions for the Minister—[Interruption.] She sighs, but I am afraid that is her job, as it is my job and that of the Committee to ensure that regulations we may accept or approve are up to the job that she says she wants done.

The Minister said in her opening remarks that the draft regulations must provide robust and effective enforcement. On the question of enforcement, how was the figure of £5,000 as the maximum fine for failing to display the details of scheme membership decided, and is it sufficient? How was the figure of £30,000 as the maximum fine for failing to register in a scheme decided, and is it sufficient?

As I said to the hon. Member for Lichfield, the Government’s consultation document makes clear the scale of funds held by agents that are not their money but are held on behalf of landlords and renters in different ways—£2.7 billion. Set that alongside some of the big companies in the field, such as Foxtons, which expects lettings income in 2017-18 of about £66 million—Countrywide expects total earnings of 10 times more than that—and that puts into some perspective the question of maximum, not automatic, fines of £30,000 and £5,000. There are real questions about whether that will be sufficient sanction, or deterrent, for companies in the field. After all, two out of five of them could already be doing something through voluntary schemes, but are not doing so. Is the level of fine sufficient to do the robust, effective enforcement job that the Minister talks about?

The Minister may say that landlords can be fined, for example, for overcrowding their houses up to a similar maximum level, but landlords can also be banned from being landlords in the worst cases. Those worst rogues may be the cowboys talked about by my hon. Friends. Why is there no similar provision in these regulations, and what consideration did the Minister give to a similar—let us use what seems to be the term of the moment this week—backstop power? Finally on fines, why write the figure into the draft order? That clearly means that it is then fixed, unless and until the House decides to legislate again to alter, and perhaps necessarily to raise, those fees.

On enforcement, who will enforce the draft regulations? I encourage the Minister to turn to regulation 5(1) in the requirement regulations—in her terminology—which says:

“It is the duty of every local authority in England…to enforce the requirements of regulations”.

Paragraph 7.18 of the draft explanatory memorandum says:

“Local authorities will be responsible for enforcing these requirements.”

Which part of local authorities will do the enforcement? Will it be trading standards? That is my assumption, because the transparency provisions in place at present under the voluntary CMP schemes are enforced by trading standards. If that is the case, not every local authority has a trading standards department. As the Minister will know from representing South Derbyshire, which is a two-tier area, not every authority has the powers of a weights and measures authority. What will be the enforcement capacity and role of, for instance, district councils in two-tier areas?

On enforcement, I will mention the costs. I looked carefully at the draft impact assessment—I do not know if the Minister signed it off—but I could not see any estimate of costs to the local authorities responsible for enforcement. Will she tell the Committee how much the Department has calculated that this will cost the local authorities that have effective and robust enforcement? Clearly, the draft regulations contain a provision for local authorities to retain any fines levied. Has she calculated how much she expects local authorities to be able to levy through these provisions on a stable annual basis? Finally, has the Department applied the new burdens principle to this new duty of enforcement, which, if the draft regulations are written correctly, will apply to every local authority? That seems clearly appropriate to me.

Finally, the experience of implementation—particularly of important measures over the last eight years—has reinforced the case that the Government are often very bad at doubling back and assessing whether what they have done has actually worked. I encourage the Minister to give the Committee an undertaking that, say, 12 months after the draft regulations come into effect, she will review the way they are working and will report to the House, so that we can see whether the case she put to the Committee in support of the draft regulations has been realised and the regulations are working as intended.

Leasehold and Commonhold Reform

Debate between John Healey and Jim Fitzpatrick

Thursday 21st December 2017 Westminster Hall

[John Healey (Wentworth and Dearne) (Lab)]

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.

[Jim Fitzpatrick]

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.

[John Healey]

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.