Leasehold and Freehold Reform Bill (Third sitting)

Debate between Andy Carter and Barry Gardiner

Committee stage
Thursday 18th January 2024 Public Bill Committees

[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.

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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.

Leasehold and Freehold Reform Bill (Fourth sitting)

Debate between Andy Carter and Barry Gardiner

Committee stage
Thursday 18th January 2024 Public Bill Committees

[Andy Carter]

Could you expand on that?

James Vitali: Of course. There are a couple of things in particular. One has been raised already by Mr Gardiner in the evidence sessions and concerns mixed-use buildings. I think it is great that the threshold is being increased to 50%. That will bring a lot of leaseholders into the scope of potential enfranchisement. But as it stands, there is a provision in the Leasehold Reform, Housing and Urban Development Act 1993 concerning structural dependency rules—shared plant rooms and things like that.

Effectively, as it stands, the provisions in that Act disqualify people who get to the threshold but share service and plant rooms with a commercial unit in the building. That section in the 1993 Act should just be removed. There is already a framework for co-operation between commercial units and residential units in mixed buildings when it comes to services. It should be relatively straightforward to create a framework for co-operation with the Bill.

[Barry Gardiner]

Q Policy Exchange describes itself as a conservative think-tank, so you and I might find ourselves rather strange bedfellows on this, but I welcome what you said about shared services. This whole section is really about competition and free markets and so on. Would you not agree that the leasehold system has all the hallmarks of monopolistic practices and market failure? It has a lack of choice, uncompetitive prices and high barriers to entry, and there is an inability to substitute a service, all of which are the standard accusations that a conservative think-tank might make of an unfree market, and it is against consumer interest. All credit to you, that is what Policy Exchange is supposed to be promoting: the free market and the interests of the consumer. Leasehold itself and the exploitation we have been discussing over the past few days are really embedded in a non-capitalistic structure, are they not?

James Vitali: Yes, I quite agree. One of the cases I make in the paper I mentioned is that not only is ownership becoming more concentrated in a narrow stratum of society, but the type of ownership we are offering the aspirant is being thinned out. You were just listening to the suggestion that leasehold is almost mis-sold to consumers. I think aspirant property owners are being mis-sold when it comes to leasehold. They think they are buying into a genuine form of property ownership, but in many ways, as I said at the start, they lack the rights and responsibilities that should come with an ownership tenure, so I completely agree.

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[Barry Gardiner]

We will agree on that one.

[Andy Carter]

Q James, we are fortunate to have you here, as somebody who thinks a lot about the property sector. We are legislating in one area; quite often, there will be implications in the broader sector. Have you put any thought into that? Could you share any views on unintended consequences that we might need to watch out for elsewhere in the property market?

James Vitali: Delighted to. That is probably the thing that I have been thinking about the most in terms of the implications of the Bill. I understand that there is an intention for a ban on leasehold houses to come forward on Report. One thing that I am really worried about is that what will effectively be created is a two-tier system of housing or tenure types in this country, between the countryside and our cities. It is very possible, if we deal with houses and not the tenures for flats, that we will create secure, authentic property rights outside of our urban areas and create in our urban areas a slightly more precarious, maybe outdated type of tenure.

As it stands, that has not been given enough consideration, because it also does not conform with the Government’s wider strategy on housing, which, broadly speaking, is to densify our urban areas and increase housing supply in our cities. There are political considerations around why they are doing that—it is a lot more deliverable to focus on the densification of cities—but there are very good economic reasons for that too: the agglomeration effects of building housing supply in a city are greater than elsewhere. We need to incentivise people living in flats in dense cities, and if we deal with leasehold as it pertains to houses, not flats, it will work against the Government’s quite legitimate and justified broader housing strategy.

Leasehold and Freehold Reform Bill (First sitting)

Debate between Andy Carter and Barry Gardiner

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[Barry Gardiner]

Q And that any residents’ association should be able to have the management of the block?

Katie Kendrick: Absolutely. If they are saying that commonhold is not ready to rock and roll, to have a share of freehold to mandate, a share of freehold for new flats moving forward would be a good step closer.

[Andy Carter]

Q I hope you do not mind if I start by congratulating you on the work you have done with the National Leasehold Campaign. I know that my constituents in Warrington South have greatly valued the assistance and knowledge you have managed to secure through bringing people together. Thank you for the work you have done there. May we just go back a little bit? Can you tell the Committee what sort of problems leaseholders have when they go to buy their freehold?

Katie Kendrick: All three of us have now successfully bought our freehold. Yes, we are still here.

Jo Derbyshire: There are a number of things. The first is that most leaseholders do not understand the difference between the informal way and the statutory way to do that. The more unscrupulous freeholders will write to leaseholders with a “Get it while it’s hot” type of offer, which can be quite poor value for money. So, there is understanding the process in the first place. Then, regardless of which way you go—if you go the statutory way, currently you pay your own fees and the freeholder’s fees. There is an element of gamesmanship that goes on at the moment, which is why the online calculator is so important. Your valuer and the freeholder’s valuer will argue about the rate used to calculate the amount and then you will try and have some kind of an agreement. It is not a straightforward process at all. Cath will tell you what happened with her transfer, because they leave things in the transfer documents.

Cath Williams: Yes, they did. In my case, it took 15 months and £15,000 to get my freehold.

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[Barry Gardiner]

Q You have talked extensively about ground rent and, Ms Derbyshire, your situation with it doubling. We all know the story about the inventor of chess, who asked for a grain of rice on the first square as his reward as long as it doubled until the last square, and then there was not enough rice in the world to provide it. This is clearly inequitable. You said that you welcome the provision in the Bill to be able to get rid of ground rent—to take it down to a peppercorn. Given that we have the consultation at the moment, would it not better if the Government just did that rather than you having to pay for it, which is what is recommended in the Bill? You should not have to pay to get out of a situation that is unjust. It was unjust in the first place, and it would be much better if the Government simply moved the consultation onwards and got rid of it.

Cath Williams: Yes.

Jo Derbyshire: The Leasehold Reform (Ground Rent) Act 2022 has essentially created a two-tier system where you have new builds without ground rent. As Cath mentioned, we are concerned that clause 21 and schedule 7 of the Bill seem to say a qualifying lease for buying out to a peppercorn rent must have a term of 150 years. We have seen lots of examples in the National Leasehold Campaign of new build properties—flats in particular—where the lease is 99, 125 or 150 years from the start, so a whole swathe of properties would be automatically excluded.

However, for us, because ground rent is a charge for no service, peppercorn is the answer. We also fear that, in terms of the timetable for legislation and getting this through, the sector will fight intensively and try to tie this up in the courts for years. It has nothing to lose; why wouldn’t it?

[Andy Carter]

Q Katie, can I just go back to your earlier point about how lots of sales are falling through? Can you just explain why that is? What is causing sales to fall through on leasehold properties?

Katie Kendrick: Because an escalating ground rent worries mortgage lenders and buyers are unable to get mortgages because of an escalating ground rent. Where that is because of the £250 assured shorthold tenancy issue, my understanding is that that will be sorted through the Renters (Reform) Bill, so that will close that loophole, but lenders do not like—for most leases now, the doubling has half-heartedly been addressed and a lot of leases are now on RPI—the retail price index.

However, with RPI being the way that it is—it has been really high in the last couple of years—some of those ground rents are coming up to their review periods and are actually doubling. Therefore, RPI, as Jo said many years ago, is not the answer. Converting to RPI is not the answer because an escalating ground rent is still unmortgageable, and it takes it over the 0.1% of property value, which, again, mortgage lenders will not lend on.

Therefore, a lot of mortgage lenders are asking leaseholders to go to the freeholder and ask them to do a cap on ground rent, which is then costing the leaseholder more money to get a deed of variation from their freeholder. That is if the freeholder agrees at all, because the freeholder does not have to agree to do a deed of variation to cap the ground rent. That is coming at a massive cost if someone wants to sell, but without that people are losing three, four or five sales, and people have given up because their properties are literally unsellable.

Cath Williams: There is a house on my estate where sales have fallen through twice already. It is a townhouse; it is worth about £220,000. The ground rent currently—it is on an RPI lease—is £400, which takes it over the 0.1% of property value. Two sets of buyers have had problems getting a lender to lend in that situation.

Leasehold and Freehold Reform Bill (Second sitting)

Debate between Andy Carter and Barry Gardiner

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[Andy Carter]

No, that is helpful. Thank you very much.

[Barry Gardiner]

Q Mr Brewis, I think we all welcome the FCA’s work to try and make things more equitable for leaseholders, so thank you for your endeavours there. I am sure you will be familiar with the Riverside case from before Christmas, in which it was discovered that an FCA-regulated broker could not provide a written contract of the insurance to the first-tier tribunal. Do you find that strange?

Matt Brewis: I cannot talk about individual cases. However—

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[Andy Carter]

Q The problem we will find, if we are not careful, in putting through legislation that allows the right to manage is that there is still no route to get somebody to make things happen if you have a council that does not want to get involved. Who is the ultimate person that you can say—

Halima Ali: It has to be central Government. They need to regulate that councils need to start adopting all new build estates going forward and in the situation that we are stuck in.

[Barry Gardiner]

Q Halima and then Cathy, let me pick up this business of the fleecehold estates, as you refer to them. They are a relatively new thing in leasehold; they were not there in the same way 20-odd years ago when we were passing the Commonhold and Leasehold Reform Act 2002. They have been seen as a revenue stream for developers. Do you think that it would make sense for local councils, when they sell public land for housing development, to insist that that public land should not be used for a private estate model in this way? Developers can of course build the homes and you can buy them, and they can make their profit from the payments that you make to buy those homes, but they should not then have an ongoing source of revenue from the substandard management, as you described it, of the estate.

I have one estate in my constituency where they were charging residents for the management of land that they did not even own. It took us months to get the documentation to prove that they did not own that land. The fence that they had mended had actually been mended by the council. Other things like that are going on, but if that restriction were put in place in the first place, they would not be able to do it, would they?

Cathy Priestley: Our understanding is that the land belongs to the developer. It is not public until it is made public through section 106 agreements with the council.