Leasehold and Commonhold Reform

Debate between Andrew Smith and Peter Bottomley

Tuesday 20th December 2016 Commons Chamber

[Sir Peter Bottomley]

I agree completely. Moreover, that reminds me that the Government have had a review of LEASE—the leasehold advisory service—and I fear that the decision for it to try to make itself sustaining within the next four years is wrong. LEASE is chaired by Roger Southam, and he and his wife know quite a bit about leasehold property. His predecessor was Deep Sagar, during whose time LEASE would hold fundraising conferences where it would take the surplus, and the people who paid to come would listen to experts explaining how they could gain extra income from leaseholders. For example, someone might have stood up there and said, “Do you know, the freeholder gets the managing agent to arrange the insurance, it is paid for by the leaseholders and the commission can stick with the freeholder end?” My hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile) may address the issue of insurance later. So if the commission happened to be 40% or 50%, a leaseholder would be paying twice as much as they should.

What happens when the leaseholders want to get together? Again, that will be a point of law for the Government to consider. I do not think that anyone expects the Minister to be able to answer all the points raised today, but we will want to see early in the new year a proposed programme of action, which can then develop into reducing the abuse and improving the happiness.

[Mr Andrew Smith (Oxford East) (Lab)]

I commend the hon. Gentleman and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) for all their work on this incredibly important subject. Given all the complexity that the hon. Gentleman is describing, and the scope for manipulation and exploitation, is anything resembling the current pattern of leasehold tenure actually just not fit for purpose? Do we not need to move to a system that has either freehold vested in resident-controlled management companies, or a form of commonhold that works properly?

[Sir Peter Bottomley]

I am grateful to the right hon. Gentleman for that.

We are talking about a number of issues that do not always come together. The first is that commonhold was recommended by the Law Commission 20 or 30 years ago, and Parliament and government thought they have made legal provision for it to come in, but it does not work. We understand that by 2009, within seven years of the Commonhold and Leasehold Reform Act 2002, officials in the Ministry of Justice and perhaps Ministers, too, knew it was not working. Some who are not very knowledgeable say that it cannot work. Others who have been outside the country know that no other country—no other significant country, as far as I know—has kept the system that we developed 100 or 200 years ago.

Besides the flat in Worthing, I have a home around the corner from here. It was built in about the 1720s and it had a 99-year lease, on the basis that in that time it would either fall down or burn down; people were not expecting houses to go on lasting forever. I pay tribute to George Thomas, now Lord Tonypandy, who, in his firebrand days, campaigned to get leasehold reform and rent Acts in place so that the people in south Wales could be saved from bad landlords and freeholders.

I have in my hand the record of the debate on 8 March 1991, when Dudley Fishburn, then the MP for Kensington, paid tribute to his predecessor, Brandon Rhys Williams, who was one of the early people to start campaigning on leasehold. In a remarkable contribution, Terry Lewis, the then MP for Worsley, made reference to a number of the abuses that existed then. This was a non-party issue then, as it is now. Nearly all the scandals that Dudley Fishburn was talking about apply now, especially to the shorter-term leases.

Commonhold works, perhaps under different titles, in parts of Australia, particularly in New South Wales, with strata holdings. People from there have come before our all-party group and our forums to talk about this. The problems we have are not found in Canada, New Zealand or South Africa, or in France and Germany. Let us consider what happens when we give people interest in the maintenance of their flats. At the moment, if someone has a leasehold and improves their property, the value goes eventually to the freeholder. If they can get rid of the freeholder, not only is the abuse stopped, but people are encouraged to invest in things that matter to them. I strongly recommend that 1991 debate to hon. Members, and I was going to go through it at greater length.

What I will do is talk about some of the abuses. Benjamin Mire, a well-known surveyor and leasehold property manager, was going to be removed by the Ministry of Justice as a person not fit for judicial office, but by the time the Judicial Conduct Investigations Office had concluded its investigations, he had retired or resigned days before he would have been dismissed. Had he not done this, the full report would have come out into the open, but as he jumped before he was pushed it did not. He is not fit for judicial office and he is not fit to go on being a registered member of the Royal Institution of Chartered Surveyors. The problem is that his clever lawyers, and perhaps a display of not enormous competence by RICS, have left the details of the charges against him by RICS not fully out in the open. There were 35 cases where he or his company, Trust Property Management, were appearing at the property tribunal. There were failings by almost everyone involved.

The problem with the tribunal is that it does not have the power to fine for repeat offences. If it did, Mr Benjamin Mire would have been fined significantly. Everyone is entitled to a fair hearing, but let me give an example of a finding in one case where the trust acted as a property manager. It was stated:

“The landlords have had scant regard to the law and the RICS Management Code in respect of the costs of the proposed interior decorations.”

How can a self-regulation system that does not consider such court findings as warranting even an admonition retain the confidence of the general public? The Government have argued for years that there is no need for statutory regulation, but can anyone name a group that supports that position? Even the main managing agents trade body, the Association of Residential Managing Agents—ARMA—has been asking the Government to regulate the sector.

Leasehold is the only part of the housing market where an unregulated person can hold huge amounts of leaseholder funds and yet has no obligation to act in the leaseholder’s interests. Let me remind the House of something: when the freeholder appoints a managing agent, who does the managing agent work for? It is the freeholder.

I ask Ministers please to establish a legal position so that the leaseholder has an interest in everything that happens either with their money or in the block where they own the lease.

In the CBRE report—the most recent I have seen is from 2013—there are references to “soft income”. We still have too many examples of landlords, sometimes those who even own their own agents, skimming on huge insurance commissions. That was reported by the Financial Conduct Authority as recently as two years ago, when it said—this backs up what I said earlier—that it was not uncommon to charge commissions of more than 40%. The worst situations are those in which the landlords’ own managing agents provide contracts through companies they own, which can result in poor services and high costs. My hon. Friend the Member for Plymouth, Sutton and Devonport might remind the House later of whether there was such a link between the freeholder and the managing agent in Plymouth.

I cannot distinguish between one Tchenguiz brother and the other, or between them and the Tchenguiz trusts, so I will talk about Tchenguiz interests and those who know can pick up on whether they are involved or affected. There are two points on which I criticise them. One was when they controlled Peverel, property managing agents who owned a business called Cirrus—as in the cloud. When some of the company’s large number of freehold blocks were said to have needed the call system replaced, there was a competition between the very big firm, Cirrus, and two little minnows. So, if we think that 99.9% was Cirrus and 0.1% was those two little minnows, there was collusive tendering. Sadly, the economic crime unit of the police, the Financial Conduct Authority and the Serious Fraud Office did not manage to get together at the same time to work out how to deal with this rip-off of millions of pounds from leaseholders.

When Peverel/Cirrus discovered that the game was up, they declared that they had been involved in collusive cartel bidding. We know from the Virgin-BA case that the first to declare that they have been involved in a cartel is penalty free. The fact is that the size of Cirrus compared with the size of the minnows made that an absurd judgment. If the police, the fraud office and the FCA had been together, they would have stopped it, but they did not, so those involved got off scot-free.

The other Tchenguiz interest was in Charter Quay in Richmond upon Thames—