Leasehold and Commonhold Reform

Debate between Lord Barwell and Peter Bottomley

Tuesday 20th December 2016 Commons Chamber

[Gavin Barwell]

I do not have an answer for the hon. Gentleman today, but I assure him that the Secretary of State and I are looking into this issue. We are very clear that it is not just a matter of stopping this practice; we must also address the situation of hard-working people who believe that they have bought their home, but who may find themselves unable to sell that home further down the line. I give the hon. Gentleman the clear assurance that we are looking at the issue.

[Sir Peter Bottomley]

May I ask the Minister to consult his officials and others on whether there is scope for declaring such a condition to be an unfair term and having it written out?

[Gavin Barwell]

There are a number of different ways in which the issue can be addressed. It is a difficult issue, because although the clear mood in the House is that the practice is unfair, it none the less interacts with the property rights of the freeholder, and those rights have some protection under the European convention on human rights. We need to think about the right way to address the problem. I will certainly reflect on the suggestion that my hon. Friend has made, and other suggestions have been made during the debate.

We should not be under any illusions. The problem does not just concern one company; a number of our larger developers are involved in it. They would do well to remember that they are building homes for people to live in, not investment vehicles for financial institutions. Except in a very few exceptional circumstances, I cannot think of any good reason for houses to be built on a leasehold basis. If the industry does not put a stop to the practice and help existing homeowners, we will look to see what Government can do.

Historically, ground rents were set at around one thousandth of the lease value, sometimes increasing every 25 or 33 years. They existed only to create a contract between the freeholder and the leaseholder. However, in recent years, ground rent levels for new leases have increased, as has the frequency of increases. Research by Direct Line suggested that the average ground rent is now £371 for new builds and £327 for older properties.

My immediate concern is the level and frequency of increases in ground rents. We have heard today about one developer selling a lease with a ground rent starting at just under £300 in 2011 and doubling each decade for 50 years, so that by 2061 the annual cost will reach almost £9,500. The purchaser was not made aware of the escalation by their solicitor, who was recommended by the developer. The purchaser is now unable to sell the property, and the cost of extending the lease or buying the freehold is prohibitive.

Of course, there is a degree of caveat emptor when we buy a new house, but we all know that our housing market is a seller’s market at the moment and the advantage lies firmly with the developer. Just because they can sell desperate people something does not mean that they should be doing so. Institutional and other investors increasingly see ground rents as an alternative to equities and bonds, but leaseholders see no return or value in ground rents, especially when they can rise to onerous levels. Obviously, Members on both sides of the House welcome institutional investment into our housing market, but I would much rather institutional investors put their money into productive projects instead of just hoovering up ground rents because they are seen as a safe bet. Both this House and the Government want to hear more from the developers about what they are going to do to put the situation right.

I turn briefly to commonhold, although Members will probably be aware that the Ministry of Justice is the lead Department for this matter. Commonhold was intended to be a voluntary alternative to long leasehold ownership. As we heard from the hon. Member for Brentford and Isleworth, it was introduced by the last Labour Government in 2002 with good intentions, but it has had very limited take-up. There are several explanations as to why. Developers have not favoured the model, and leaseholders have found it a complicated process. Commonhold can be created only where all the owners of the land in question agree to its creation, so it is for developers to decide whether to build commonhold, or for everyone with a shared interest in an existing block to agree to convert to commonhold and to agree their commonhold community statement.

I know that several Members have pressed strongly for commonhold and continue to do so, arguing that it is a better alternative to leasehold arrangements. Commonhold is one way forward in considering improvements for leaseholders, but we also need to look at what we can do to change the existing system. There have been calls for responsibility for commonhold to be transferred from the Ministry of Justice to my Department. That would require a machinery of government change, and it has been agreed with Ministers that we will have a look at that in the new year.

I hope I have made it clear that the Government accept that there is a lot to do in this area. If the House will forgive me, I would like to say a few words about the things we have already done to improve matters and to ensure that there is easy access to remedies when things go wrong. In the Housing and Planning Act 2016, we introduced two important measures to help leaseholders to exercise their rights and to ensure that they are not ripped off by unscrupulous landlords. Members will probably be familiar with the Landlord and Tenant Act 1985, which allows a tenants association made up of “qualifying tenants” to seek statutory recognition. Such recognition provides the tenants association with additional rights over and above those enjoyed by individual leaseholders, including, crucially, the right to be consulted about the appointment of managing agents, to be notified of works proposed by the landlord and to receive copies of estimates.