Leasehold and Freehold Reform Bill

Barry Gardiner Excerpts

Report stage
Tuesday 27th February 2024 Commons Chamber

[Barry Gardiner (Brent North) (Lab)]

The Minister was most accommodating throughout the proceedings in Committee, and we are all grateful to him for the way in which he has listened.

Further to the point raised by my hon. Friend the Member for Sheffield South East (Mr Betts), the Minister will know that many developers have located themselves extrajudicially in places such as the Cayman Islands. Wembley Central Apartments Ltd in my constituency has finally ended up there, as have many others. What in this Bill will enable us to extend our reach and force such companies to respond, reply and do what the Building Safety Act 2022 already says they ought to do?

[Lee Rowley]

The hon. Gentleman makes an important point, which I know we debated in Committee. He correctly highlights the challenges in certain areas of enforcement. If I may, I will come back to that later in the debate.

--- Later in debate ---

[George Eustice (Camborne and Redruth) (Con)]

Let me begin by declaring my interest as an adviser to the HSPG group, which among other things is a registered provider of social housing.

I rise to speak to new clause 68, which is based on a specific challenge that I have encountered in my constituency and that affects residents in more than 70 homes spread across three locations in the town of Hayle and the village of Mount Hawke. The experience of those cases exposes a potential gap in the Bill and in policy on the issue of shared ownership. The Bill deals at some length with standard leasehold agreements and the problems of extortionate ground rents, as well as with some of the issues around service charges and management companies with which we are familiar. However, in the early 2000s some agreements were put together that were technically leasehold agreements but that masqueraded as shared ownership agreements, even though those shared ownership agreements do not comply with the standards of modern shared ownership agreements.

The agreements I have encountered contain a number of defects, and I would like the Minister’s view on them. The first is that the freehold on those homes is not held by a registered provider. It was initially owned by the developer who built the sites, but it has changed hands twice. In a way that is familiar to many Members, the freehold has ended up in the hands of an offshore investment vehicle based in the British Virgin Islands, and with a company called Rockwell, which has not been easy for residents to deal with over the years.

The second major defect in the agreements is that there is no provision for staircasing or enfranchisement of the leaseholder’s share of the property. Residents typically own between 58% and 72% of their property, but their stake is fixed and cannot be extended. There is no right to extend under the agreement. The agreements are under a 990-year lease and there is no ability to extend that, although I appreciate it is a long-term lease.

The third defect is that even if residents could enfranchise and extend or staircase their ownership within the agreement, a section 106 covenant means that the properties must be sold to a local connection with a significant discount on market value. The way that has been worded in the agreement means that it is simply not worth the while of residents to increase their share, since there would be no value to the increased share that they would have.

Finally, there was something described as ground rent, although in practice a big chunk of that was effectively a rent on the shared ownership portion. The ground rent was initially around £20 per week, but that was linked to the retail price index on an escalating model. It has now got close to £2,000 per year for those residents, and it is still increasing rapidly.

All of those defects in that leasehold tenure arrangement or shared ownership arrangement—indeed, it appears to be neither one nor the other—mean that all of the properties have been judged unmortgageable by lenders, and that means the residents are trapped. They cannot sell their properties because no one can get a mortgage to buy them. These are people in my constituency who had a local connection. Typically, they are on modest incomes. These agreements and these homes were sold to them as a way to get a foot on the housing ladder, and for those residents it has transpired to be a complete nightmare.

I will say a word about planning and pay tribute to Penwith District Council, as it was then, and Cornwall Council. Planning was granted between 2004 and 2006, and the local planning authorities did their due diligence. They could see that this shared ownership model was defective, and they refused planning permission on all three sites on that basis. The Minister might ask how these homes were then built and sold under the arrangement, but I suspect he can predict the answer, which is that they were approved at appeal by the Planning Inspectorate, an agency within his own Department. The situation that my constituents face has been caused principally by a chronic failure of due diligence by the Planning Inspectorate, as is often the case with such issues.

In conclusion, my new clause 68 seeks to address a gap in the Bill and to give the Government the opportunity to atone for the mistakes of the Planning Inspectorate. It deals explicitly with shared ownership agreements and would create a statutory right to staircase ownership and put a cap on the rent of the freeholders’ portion of the home. I do not intend to press new clause 28 to a Division this evening, but I hope that the Government will consider the matter closely. I would like to meet the Minister or the Secretary of State and share with them and their officials a copy of the shared ownership agreement that my constituents are suffering under so much, with a view to seeing whether the Government might consider further changes at later stages of the Bill’s consideration to address a gap in it. Given that the Planning Inspectorate has been somewhat culpable in creating this problem for my constituents, I hope that the Government will seek to do that.

I support the general thrust of the Bill in all its attempts to deal with management charges, service charges and ground rents, but I hope that the Minister will agree to meet me to discuss some of these remaining issues.

[Barry Gardiner]

It was 1 December 1998. I had been an MP for one year and seven months to the day, and I was chained to the railings of College Green by 200 cheering leaseholders. Thankfully, they were friendly. It was to illustrate that leaseholders felt that they are were prison. Those were the days before social media, and it was a photo op. The BBC ran the headline, “Leaseholders demand more control”. They still do.

Since then, we have had the Commonhold and Leasehold Reform Act 2022, which was an attempt to resolve some of the problems, such as forfeiture of a person’s home for a failure to pay a small service charge, the ground rent grazers charging money for no service and moneys not being held in trust in sinking funds. It is strange that after 25 years, these should be the very areas that yet another Bill on leasehold reform is pretending and failing to solve.

I say “failing”, because that is the reason I rise to support new clause 5, tabled by my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook). It is ridiculous that a landlord can take away a person’s home worth hundreds of thousands of pounds for a simple failure to pay a minor service charge amounting to a couple of hundred pounds and where there is a dispute over whether the service was even provided. That is why I tabled new clause 16 about moneys being held in trust, which would implement a provision of the 2002 Act that has never been brought into force. We heard in Committee that the policy had strong support from stakeholders, including spokespeople for the Property Institute and the Leasehold Advisory Service. Even the British Property Federation has campaigned for this provision of the 2002 Act to come into force, yet it is not here in the Bill. Of course, 2002 was a time when nobody had even predicted the new rentier practices that freeholders and developers have since invented to extract money from homeowners for the privilege of living in their own homes: the scandals of leasehold houses; the repeated doublings of ground rents; and the inclusion of commercial areas and shared services in any development to stop any hope of residents exercising their right to manage.