Leasehold and Freehold Reform Bill (Third sitting)

Andy Carter Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[Mike Amesbury (Weaver Vale) (Lab)]

I am a member of the all-party parliamentary group on leasehold and commonhold reform.

[Andy Carter (Warrington South) (Con)]

On that basis, I am also a Member of the all-party parliamentary group.

[The Chair]

I think you have to declare only APPG officer posts, not just membership of them. But thank you anyway; it is best to be safe.

Examination of Witnesses

Ms Paula Higgins, Bob Smytherman and Sue Phillips gave evidence.

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[Barry Gardiner]

No, I will leave it there.

[Andy Carter]

Q Paula, your organisation, the HomeOwners Alliance, has described the Bill as a huge missed opportunity, because including flats in the changes was not done in this Bill. Would you like to elaborate a bit on that?

Ms Paula Higgins: I feel strongly about that. This is really going to be a missed opportunity. These types of Bills will come once every 20 years, so you must finish the job that you start. We saw that in the Commonhold and Leasehold Reform Act 2002, where we had the commonhold and it did not happen. If we cannot get commonhold sorted, why do we not have all flats being built having to be share of freehold—having to be sold share of freehold within five years—and have a sunset clause saying that there will be no new leasehold flats after a certain time? If you do not do it now, the next opportunity is not going to arise. I feel very strongly. We have lots of people who are waiting. We have people coming to us every day saying, “I am waiting for my lease extension. The Government are going to do something about it.” We have been waiting for years; we put out our report in 2017 showing that 43% of leaseholders did not even know how much time was left on their lease. They are not expected to be experts in this; they are buying a flat to live in. So it is a real missed opportunity if we do not do something on this and it will come back to bite us.

[Andy Carter]

Bob, is there anything you want to say on that?

Bob Smytherman: I would just completely echo that. For us as an organisation, in 2002 we were really hoping that the Government would ban new leaseholds in the 2002 Act, and the sector would be in a very different place had we done that. This Bill is a really good step, and I hope that we can get it as a first step and then build on it from there. I would hate to think that we try to make it perfect and we end up with something less perfect. From our organisation’s point of view, this is a really good starting point. I think it is the beginning of this, as Paula said, but it is a really good opportunity to get it right. But, yes, 2002 was a bit of a missed opportunity to ban leaseholds for blocks of flats.

[Andy Carter]

Q Can I just stick with you for a second, Bob? I will come back to you in a second, Paula. From your perspective as the chair of the Federation of Private Residents’ Associations, Bob, can you just talk us through the main elements of the Bill that will apply to your organisations?

Bob Smytherman: Thank you for that opportunity. Our organisation is called the Federation of Private Residents’ Associations. To be clear, we are talking about groups of leaseholders who come together democratically within their blocks of flats; we are not talking about neighbourhood watch groups and those sorts of residents associations.

Very different sorts of residents associations come to us for membership. We have those more informal groups that do not meet the 51% threshold to be a recognised tenants association; we have that group of RTAs that are formally recognised by their landlords; and then we have the residents management companies, which are probably the majority of our members. We have RMCs such as mine, which has a tripartite lease, which I am sure Members will understand, where you have an external freeholder and then a landlord who has responsibilities, which enables people such as me in my block to basically act as a commonholder. We are a limited company, limited by share. I am a shareholder in my block. I am elected every year as a director and we manage our own block. Of course, we also have those RMCs that may have a different arrangement with their freeholder, and that is where the Leasehold Reform (Ground Rent) Act 2022 has been very helpful in coming into law, because there are sections, which we do not need to rehearse today, to deal with a doubling and tripling of ground rents and things like that.

So there are different sorts of residents associations, but I would argue on behalf of all of those, certainly our members across England and Wales, that this Bill is a really good starting point for all of them. I encourage leaseholders to come together in their buildings and take control of their buildings democratically, working with their neighbours.

[Andy Carter]

Q What do you think is missing from the Bill that would benefit your members?

Bob Smytherman: At the moment, I would like to see this over the line, in all honesty. There is the conversation to be had—I think Paula mentioned it—about commonhold, which I think can come later on. But in terms of blocks like mine, where we have those controls already, there is absolutely no advantage to us in banning leasehold, because we have all the controls we need.

As the directors, elected democratically by the shareholders of a limited company, we are the landlords, so we have the ability to manage that estate democratically. We hold an annual general meeting and we comply with the company law, like any company. Hopefully this legislation will encourage more volunteers. I am a volunteer, I don’t get paid for what I do in my block, but I am really passionate about working together with my neighbours to make my estate better. Members of this Committee are very welcome to come to Worthing, down on the south coast, to see how we manage our own block, because I am very passionate about working together to make a real difference for our neighbours and friends where we live.

[The Chair]

One more question, Andy, and then I am going to move on to get everyone in.

[Andy Carter]

Q Just so I understand, you do not object to leasehold continuing, but what is your view on new leasehold?

Bob Smytherman: I think all new developments should be commonhold. It is a shame we did not do that in 2002, but I think—as Paula said—there is an opportunity to do that now. But I wouldn’t want to throw everything else out at this point to die in a ditch over that, because actually I think there is some really good stuff in the Bill.

[The Chair]

I am sure I will have time to come back to you, but I just want to get the first batch of questions in.

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[Andy Carter]

Q We have two minutes. I am conscious that you have talked to us a lot. Is there anything that you have not had the opportunity to tell us that you would particularly like us to hear from your relevant organisations?

Ms Paula Higgins: There is another thing that I feel very passionately about. People come to us—

[The Chair]

Less than a minute.

Ms Paula Higgins: Two minutes?

[The Chair]

Less.

Ms Paula Higgins: The other things that I feel very passionately about are estate charges and right to manage. We need right to manage and we need to make it so that all new-build estates are adopted by the local council.

Sue Phillips: I agree. The problems with estate charges can be overlooked in looking at service charges, rent charges and estate charges. The other thing I would flag up is for you to please look at the resale of shared-ownership homes. There are issues there.

Bob Smytherman: Simplify the process of bringing leaseholders together to form a residents association, so that they can speak to their landlord and the management with one voice.

[Andy Carter]

Thank you; that is much appreciated.

[The Chair]

Perfect, bang on. I am afraid that that brings this question session to an end. Thank you for coming in and giving evidence to us.

Examination of Witnesses

Professor Andrew Steven and Professor Christopher Hodges OBE gave evidence.

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[Barry Gardiner]

Their income may be stable and reasonable—being in shared ownership does not mean that your income is unstable in any way.

Paul Broadhead: No, not at all.

[Andy Carter]

Q I want to pick up on some of the comments we heard on Tuesday around mis-selling. You mentioned the work the building societies—your members—would do to understand the affordability and the ability of a purchaser. What steps do your members go through to ensure that the person taking out the mortgage fully understands what they are buying? I am conscious that you will not necessarily always know all the things that they know. Could you just talk us through that area?

Paul Broadhead: Certainly. The first thing to remember is that mortgage lenders are experts in mortgage lending, not in property law—it is down to the conveyancer to advise the borrower of the requirements of the lease and the purchase of the property they are buying. The way I would describe it is that the conveyancer and the surveyor, to an extent, are the lender’s eyes and ears on the ground to ensure all of that is clear to the borrower, and that they are entering into that transaction with their eyes open.

What we have seen from a mortgage lender’s perspective, particularly when the escalating ground rent issue started to come to a head, was lenders taking a much more proactive approach on new developments to understand the terms of some of those leases, and actually refusing to lend on those new developments. Of course, there are a whole range of mortgage lenders that will lend on a new development, but the fact is that a new development without some of those large lenders—because they will not lend against that leasehold—drives change. That is what we have seen. We have seen the effect of that with the escalating ground rent—with the reduction of that.

[Andy Carter]

Q I just want to be clear: from a consumer perspective, if somebody is buying a leasehold property, are your members telling them, “This is a mortgage for a leasehold property,” or do they not have that conversation?

Paul Broadhead: They will tell them that it is a leasehold property. It may not be known when the customer comes in to apply for the mortgage, because that will come out through the conveyancing process, and often when the property is advertised it does not make clear whether it is a leasehold or a freehold property. But that will be dealt with and it will be made very clear in the terms and conditions of the mortgage what that tenure is.

What we have seen is that some of our members have turned down mortgages because they have come across onerous lease conditions, and the consumer, the prospective purchaser, has then complained to say, “I can afford this mortgage. Why have you turned me down?” When the lender has explained to them what they know—there is this asymmetry of information—the consumer, with what they then know about the terms of the lease, has pulled out of the transaction because they did not realise that before. I think the most important thing with leasehold is not necessarily more information, because you need experts to look at that information, and too much information is often as bad as too little information; it is more about making sure that the right information is given to the right person at the right time.

[Andy Carter]

Q That leads me on to the regulation of managing agents and the property sector. Is that an area that your members have any views on? Is it something that you would welcome?

Paul Broadhead: Yes, we believe that managing agents should be regulated. We think the fees—where the service charges money is spent—should be made clear to the borrower. I think that, at the very minimum, short of regulation, they should be forced to be a member of an alternative dispute resolution scheme.

[Mike Amesbury]

Q That point is very interrelated to this. A considerable number of leaseholders are excluded from provisions to remediate the buildings. An example is people in buildings that are below 11 metres, or it might be people who have more than three flats. How has the market been responding to that?

Paul Broadhead: There have been well-documented issues about building safety post the Grenfell tragedy. We did see some real difficulty about people being able to get mortgages where there was cladding on the building. Progress has been made there. I think that now, in most cases—particularly above 11 metres, as you suggest—the market is open, because it is clear that there is recourse to either the developer or the Government scheme to fund the work. Our starting position, when this came out with the amended Government guidance note in 2020, was that no leaseholders should be responsible for making good the combustible cladding, if it was now inappropriate, because they have gone into this, they have been advised by their legal advisers, and they should not be forced to put their hand in their pocket.

We are not there yet on properties below 11 metres, because the Government have chosen to exclude them from the support scheme. I have had a number of meetings with consumer groups, looking at cladding and at leasehold, and I think we are on the same page here. We are trying to find a solution from a mortgage-lending perspective, because we want that market to open up, but what seems to be more and more frequently coming out is that the cladding issues and other building safety issues are being conflated. It is really difficult then from a mortgage lender’s perspective, because if the cladding itself does not need replacing because it is safe, but there are other defects in there, there may still be some comeback that leaves leaseholders with quite a large unexpected bill that is at the moment unquantified and would affect the affordability of that borrower, going forward. We continue to meet with these groups and with Government to seek a solution, but it certainly is not operating perfectly.